• SUM INSURED:
The basis of sum insured should be the reconstruction cost of the house and not the market value of the property. Thus, for a flat measuring 2000 sq. ft, considering the reconstruction cost @ Rs. 2,500/sq. ft. the amount to be insured will be Rs. 50 lakhs only i.e 2,000 sq ft * Rs. 2,500. Irrespective of the current market price of flat, which might be substantially higher.

In case you have taken a housing loan, bankers might unknowingly insist on taking the insurance for the entire agreement value of the flat ignoring the fact that the agreement value of the flat would include the cost of construction of building + proportionate value of land. In such situation you would have to inform the bankers that land cannot be insured under the Fire policy, hence the insurance should be only for the construction cost.

• Basis of Valuation
i) Reinstatement Value: The sum insured in this case should be the new reconstruction cost of the house/ building and not the depreciated value. In case of a claim the insurer, will pay the reconstruction cost without any deduction for depreciation. Under Insurance will be applicable at the time of the claim if the correct reconstruction cost is not declared while taking the policy.
ii) Market Value: Market value means the reinstatement value less applicable depreciation. Under this method the sum insured will be the depreciated value of the house/building and the claims under this policy will also be subject to deduction for depreciation