Our home is often our biggest investment – with the money we have invested in buying it, furnishing it, and maintaining it. It is logical this valuable asset to be protected, and property insurance serves precisely for that purpose. It ensures the financial stability and peace of mind of homeowners, because in the event of a covered incident, whether it is a natural disaster or a flood from the upstairs apartment, they can rely on the compensation to recover their losses.

The extent to which you are protected depends on the terms of your insurance policy, so it is important to choose a policy that suits your needs and personal situation. Despite the wide variety of such products on the market, there are some key indicators that can serve as a guide:

 

Insured Sum

The question of what amount to insure your home for is one of the most important when choosing a policy – after all, it determines the maximum amount you may receive if your property is destroyed in a risk event. On the market, the following approaches are encountered regarding the determination of the insured sum:

-          Policies with a fixed (limited) insured sum

Insurers offer ready-made packages with insured sums and premiums, making it easy to choose the option that is suitable for your needs. The amounts can vary significantly – there are policies for 30,000 EUR, and for 150,000 EUR. Even if you choose a lower amount that is not sufficient to build a new home, you can still rely on protection for covered risks within the limit of the policy.

-          The insured sum reflects the actual value of the property

These types of insurance policies provide more comprehensive protection. The insured sum of the policy is based on the characteristics of your property – type, square footage, location, etc.

 

Basis for calculating compensation – replacement value and actual value

With replacement value policies, the compensation is calculated to be sufficient to restore the damaged or destroyed property. With actual value policies, depreciation of the property is taken into account, and accordingly, the amount paid is reduced by the applicable depreciation percentage.

 

Risk Coverage

It is common practice on the market to offer a basic package of risk coverage, which users can upgrade with other packages or individual risks. The basic coverage package usually includes fire, natural disasters such as storms, hurricanes, hail, floods, landslides, weight from natural snow or ice accumulation, plumbing incidents, vandalism, vehicle impact, debris removal costs, and some others.

Additional coverage can include short circuits and power surges of electrical installations and/or appliances, glass breakage, loss of rental income, rent for alternative accommodation, theft, liability to third parties, and others. The "Earthquake" risk is more often added to the insurance coverage at the client’s request, but there are also offers where it is included in the basic coverage package. Regarding this risk, it is common practice to apply the principle of deductible. This means that you bear the losses up to the amount of the deductible, and the insurer pays everything above that. The amount of the deductible varies within the range of 1–2% of the insured sum. Some companies offer the deductible option for other risks included in the policy as well, which reduces the cost of the policy.

-          Coverage for immovable and movable property

Note that the basic coverage in home insurance refers to risks related to immovable property. If you want to be compensated for damage to furniture, appliances, and others, your policy must also include coverage for movable property.

-          Insured sums for risk coverage vary

For example, for immovable property the amount may be 100,000 EUR, for movable property – 10,000 EUR, for the “Theft” risk – 2,000 EUR, and so on. Check what is included in the offer, as there are options to adjust the amounts to match your personal situation and needs.

 

Property Insurance for Mortgage Loans

When a mortgage loan is granted, banks require insurance for the mortgaged home. It is a standard property insurance policy with an added special condition that, in the event of damage, the right to compensation will be exercised by the bank as a priority to cover the outstanding part of the loan – i.e., the creditor bank is the beneficiary under the contract. It is common practice for banks to offer home insurance bundled with the loan. However, customers have the right to choose another insurer, as long as the policy includes the required minimum coverage.

It is important to familiarize yourself with the terms of the offered policy to avoid potential problems in the event of a risk event. Here is what you should pay attention to:

-          How is the insured sum determined – based on the outstanding loan balance or based on the value of the property?

You should know that the first option – based on the outstanding loan amount – does not offer full protection. For example, your home is worth 200,000 EUR, you owe 50,000 EUR on the loan, and your policy is for that amount. If a fire destroys your home completely, 50,000 EUR will be paid to the bank. However, if your policy is for 200,000 EUR, in the same situation the insurer will pay 50,000 EUR to the bank, and 150,000 EUR to you.

-          What does the risk coverage include?

Banks finance the purchase of immovable property, and its protection is of primary importance. Therefore, the commonly offered policies usually include coverage for basic risks of the immovable property only. Check what the specific offer includes, and if you wish, you may request additional risks and additional coverage, such as for movable property.

 

Conditions and Procedures for Filing a Claim

To ensure that you can rely on the insurance protection, it is important to know how to act in the event of an incident and how to file a compensation claim. This information is available in the general terms of the policy, where the specific conditions and deadlines are stated. Check whether the incident that damaged your home is covered by your policy. For example, if you do not have “Theft” risk included, you should not expect compensation in connection with such an event.

More information can be found in the article “What should I do after the occurrence of an insurance event?”