Whether you're an experienced tokenized property investor or just stepping into the world of real estate, we’re here to share valuable insights about the most important documents involved in a real estate transaction. At NOVA, we handle these documents daily, and while you might not need to worry about certain aspects like property appraisals, it's still essential to understand what these documents are and how they work. Today, we’ll focus on home insurance.

Home insurance is a type of financial protection designed to safeguard your home and personal property from unexpected events like damage, theft, or disasters. Home insurance may also provide coverage against accidents that happen inside the home or within its territory.
What is home insurance?

At its core, home insurance is a contract between you and an insurance company. You pay a regular fee, called a premium, and in exchange, the insurer promises to help cover the cost if something bad happens to your home or belongings.

What does home insurance cover?

Different countries may have different types of policies along with different standards for coverage. Here are some common types:

  • Dwelling protection, which covers the physical structure of your home (walls, roof, foundation, and floors) and any permanent fixtures like plumbing or fitted kitchens;
  • Personal property protection, which protects the items inside your home – furniture, electronics, clothes, and other personal belongings – from damage, theft, or loss. Even if you rent, insurance can help replace your things if they’re destroyed or stolen;
  • Liability protection, which covers you if someone gets injured on your property. It can also help to cover damage that you accidentally cause to someone else’s property;
  • Additional living expenses, which cover the costs of staying in another dwelling if your home becomes uninhabitable due to damage.

What is peril?

A peril is an event or circumstance that leads to property damage. The perils covered by your policy can differ from country to country, but the most common ones typically include:

  • fire and smoke,
  • storms (wind, hail, and lighting),
  • theft and vandalism,
  • falling objects (refers to objects falling onto your home, such as tree branches or debris during a storm),
  • explosion,
  • civil disturbances (damage caused by riots, civil unrest, or protests that lead to vandalism or destruction of property),
  • snow, ice, and frost,
  • vehicle or aircraft impact (refers to damage caused by vehicles or aircraft crashing into your home.),
  • water damage (like internal water leaks, burst pipes, or accidental overflows from appliances like washing machines or dishwashers.).

Huge disasters like floods, tsunamis, volcanic eruptions, or earthquakes are usually separate from standard home insurance and require an additional policy because they represent high-risk, high-cost events that are region-specific and difficult for insurers to predict and manage. 

Each country handles natural disasters differently, so it’s essential for homeowners in risk-prone areas to check their policies and ensure they have appropriate coverage.

How does insurance work?

Let’s imagine that severe wind in a tropical country damages a house roof.

When a claim is made, the homeowner will typically be required to pay a deductible. In simple terms, an insurance deductible is the amount of money you need to pay out of your own pocket before the insurance company helps cover the cost of a claim.

For example, if home insurance has a $500 deductible and the house roof has $2,000 worth of damage, the homeowner would pay the first $500, and the insurance company would pay the remaining $1,500.

The deductible is basically your share of the risk, and typically, higher deductibles lead to lower insurance premiums, but it also means that you will pay more upfront if something goes wrong.

Replacement cost vs. actual cash value

If the property is fully destroyed, the amount the insurance company pays will depend on the type of coverage you have.

Replacement cost covers the cost to repair or replace the property with similar materials, without deducting for depreciation. You will receive enough to rebuild or replace the property with new items, up to the policy limit.

Actual cash value takes depreciation into account. The payout you receive is the current value of the property, factoring in its age, condition, and depreciation over time. This typically results in a lower payout than the replacement cost.

With the replacement cost, you can expect the insurer to cover the full cost of rebuilding or replacing your property up to your policy’s limit. However, with actual cash value, the payout will reflect the current market value of your property, factoring in depreciation, which often results in a smaller payment.

What affects the cost of home insurance?

Home insurance premiums vary based on several factors. Locations prone to natural disasters or high crime rates generally incur higher costs due to increased risk. The value of your home and belongings also impacts the premium: More valuable properties or luxury features mean higher insurance costs. Additionally, the amount of coverage you select will affect your premium – broader protection or higher limits lead to increased costs.

Summary: Home insurance

Real estate insurance plays a vital role in protecting against unexpected risks. Deciding whether to insure a property is a personal choice for each investor. At NOVA, we prioritize safeguarding our properties and providing peace of mind to our investors by making sure all our properties are fully insured.

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