Building Insurance (A Simple Guide)

Cars, two-wheelers, cycles, and even your neighbor’s puppy can be insured, but did you know that entire buildings can also be insured? Yes, entire buildings irrespective of their size can be extended insurance coverage.

This article will attempt to explain the concept of building insurance, and at the same time highlight some of the most important topics concerning building insurance such as importance of building insurance, types, scope, benefits, and more.

We will extensively talk on the following topics:

• What is building insurance? (Meaning)
• Importance and Benefits of Building Insurance
• Inclusions and Exclusions in Building Insurance
• Potential use cases of Building Insurance
• Types of Building Insurance
• How is building insurance premium determined?

What is building insurance? (Meaning)

A building insurance policy is a contract between the owner of the building and the insurance company. This contract is for a specific period of time and a specific amount (Premium). A building insurance policy provides coverage to the policyholder in the event that the insured building is damaged during the contract term.

Importance and Benefits of Building Insurance

A building is an expensive asset and should be insured. Uninsured buildings can be a cause of massive financial pain to the owner of the building. Let us highlight some of the most important benefits of building insurance below:

• Coverage against losses: This is the fundamental benefit of having your building insured. Damage caused to your building during the policy tenure will be covered by the insurance company. This is however subject to the terms and conditions of the policy bond.
• Coverage for internal items: It is generally a surprise to policyholders that insurance companies even extend coverage to internal items like electric items and lightnings. Even expensive items like jewelry and artwork is covered if you buy a rider along with your base policy.
• Peace of mind: Peace of mind is everything, and a building insurance policy will provide a good nights sleep to the policyholder, knowing that he is covered against unforeseen difficulties.
• Loan: Bank’s will generally ask if a building is insured before collateralizing it.

Inclusions and Exclusions in Building Insurance

Inclusions and exclusions depend of the type of building insurance policy as well as the insurance company issuing the policy. That being said, there are certain inclusions and exclusions that are generally shared across policies and insurance companies, they are:

Keep in mind that actual inclusions and exclusions will need to verified and checked with the insurance company.

Potential use cases of Building Insurance

Building insurance can be bought by the following parties:

1.) Small and large businesses: Both, small as well as large businesses can leverage building insurance to protect themselves against potential losses. It is considered extremely cognizant to ensure that your building is insured and covered.

Businesses that can be covered under building insurance are:

• Hospitals and medical centers
• Retail super stores
• Small and large malls
• Residential towers
• Hotels and restaurants
• Airports and ports
• Mansions and bungalows
• Private buildings

2.) Individual Owners: Not only large and small businesses, even individual owners that own buildings need to strongly consider buying building insurance as the costs of servicing substantial damages to a building could be astronomical.

3.) People who rent: Certain insurance companies even sell building insurance policies to renters that rent out entire buildings.

Types of Building Insurance

Insurance companies will generally offer flexible building insurance plans that cover all bases.

• Coverage for insides: This type of building insurance policy only provides coverage to the insides of the building. Here, only the contents of the building will be covered.
• Comprehensive coverage: This type of building insurance policy covers the contents of the building as well as the structure itself. It is a comprehensive policy.
• Comprehensive coverage with rider: This is where a comprehensive policy is extended even further by buying relevant add-ons or riders. A policyholder can buy a number of riders along with the base policy. The rider increase the coverage of the policyholder. There are a variety of riders available in the market.

How is building insurance premium determined?

The policyholder will need a pay a rate of premium to insure his building, but how is this premium calculated? Let us have a closer look at how an insurance company determines the rate of premium.

• Geographic location: This is one of the most important factors that determine the premium rate. If the building is in an affluent location, the cost of premium will generally be higher compared to buildings situated in less affluent areas.
• Value of the building: The insurance company will do a valuation check of the building and quote a rate of premium that works for them. The building owner can provide the insurance company with a recent valuation as well.
• Value of the insides of the building: The value of the insides of a building vary, this ensures that the premium rate also varies. A building may have expensive lighting, electronics, safety system, etc installed within the building premises. An insurance company will take the costs of covering these expensive items and thereby increase the premium.
• Type of safety systems in place: If a building has adequate safety systems in place like 24×7 security, CCTV cameras, fire safety systems etc installed, then it will have a favorable impact on the premium rate, it will bring the premium down.
• Age of the structure: This is another very important factor that an insurance company considers. Generally, the older the building the more it costs to insure the structure as the chances of damage increase