I have three life insurance policies with different sums assured. However, I have not declared that I have other policies with any of the insurers as my agent didn’t tell me to do so. Is it compulsory to declare your other policies? If I haven’t done so, what can be done now?

—Ashwin M. Ram

Most proposal forms of life insurance products require you to declare existing life insurance policies. This information is required for financial underwriting. Insurers want to ensure that the aggregate sum assured taken by an individual is not disproportionate to the person’s annual income. This underwriting holds much more importance in case of term insurance than in the case of endowment plans or unit-linked insurance plans. If you have not made this declaration so far, you can do this in writing to the insurer’s issuing branch office. Make sure you take a written acknowledgment of this declaration.

I have a 2,500 sq.ft house in a residential tower in Bengaluru. Its current market price is about 2.5 crore and I am planning to get a home insurance. For how much should I get it insured considering the price would go up as the locality is developing?

—Ketan Mishra 

You can choose the sum assured depending on reinstatement value, agreed value and depreciated value. Under reinstatement value, you need to insure the cost of reconstruction in case of damage. For a 2,500 sq.ft upmarket construction, it would mean a sum assured of about 1 crore. In case of damage, you need to do the repairs to get the amount reimbursed. For agreed value, you need to take the registered value of the property or the prevailing circle rate. Such policies pay for repairs the way reinstatement polices do. Additionally, if the property cannot be reinstated, the insurer pays the agreed value on surrender of the property. Finally, the depreciated value policies, also known as ‘market value’ policies, pay the depreciated cost of the damaged asset. For such policies, the sum assured would be the cost of reconstruction of the house reduced for depreciation for age of the house.

The current market value of the house has little bearing on the sum assured in the case of reinstatement and market value sum assured policies. In the agreed value approach, you can enhance the sum assured annually to capture market fluctuation. In case of apartments, your first preference should be for agreed value insurance, followed by reinstatement value, in case you want to reduce your premium. 

Abhishek Bondia is principal officer and managing director, SecureNow.in. Queries and views at mintmoney@livemint.com

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