A large number of Indians opt for insurance policies on vehicles, valuables, and gadgets against loss, theft and other risks. But on an average, buying property is the largest financial investment made by most Indians with possibly the highest risk factors attached and yet does not see any penetration in the Home Insurance sector. The main reason behind a paltry 1% of home buyers opting for Home Insurance is mere lack of awareness. Even people who are aware of the risks are unwilling to put a price or premium on it. The risks of fraud or illegal property acquisition may not be covered by most policies but one cannot ignore the other risks a home may face such as natural calamities or theft of contents of the property. These risks expose the home buyer to many financial difficulties and hassles. It is therefore important that a home buyer gets his home insured to attain assured financial security and peace of mind.
What is home insurance?
Home insurance is a policy that offers financial protection to a private structure and not the complete property or a property that is older than 50 years. A home insurance policy also covers the contents of the insured house.
What does a home insurance policy cover?
A home insurance policy covers two aspects: property structure and property contents. Under property structure, the policy covers the cost of repairing the damage occurred on the property. A person insuring his home can either purchase both the policies separately or together. It is advisable to opt for a home insurance if you own a property. Similarly, if you stay in a rental property, you can opt for an insurance cover only for its contents.
Covering the cost of the structure:
The sum insurance for his/her property is assessed based on the built-up area and the construction cost per square feet by providing a cover of rebuilding/renovating the cost of the structure rather than the market value of the property. Home Insurance is offered in various premiums and these premiums will be offered based on the property size, type of construction, geographical location, the valuables and the jewellery inside the property. Also, if one owns a basement floor it might become difficult for him/her to get it insured owing to an increased risk given the very nature of the floor. Likewise, a property situated in a flood prone or an earthquake prone area will attract a higher premium.
For example, even if a property is worth Rs. 40-50 lakh, one might not want a huge cover for such a property. The quality of construction will be considered before deciding the cost of rebuilding the structure. The higher the quality of material, the higher will be the cost of repairing the structure. However, one should know that choosing a multi-year insurance policy will fetch attractive discounts.
Covering the cost of the contents inside the structure:
A home owner should specifically ask for the contents cover if he/she want’s to protect the property content along with the structure. He/she can specifically ask for a list of items to be insured and should further file an FIR (First Information Report) and other reports with the fire brigade and more to claim the settlement in future. However, one should avoid insuring the household goods as per the book price, as the adjustment for depreciation will fetch a smaller claim amount. Also since it is not easy to know the replacement cost at the time of buying an insurance cover, one should calculate an approximate amount for the listed items beforehand. For insuring electrical items such as expensive televisions, music systems and more, one should choose separate plans under the EEI (Electrical Equipment Insurance) which will act as a total risk cover for all the electrical equipments up to five years. One should remember that all the details of the electrical gadget such as its description, model and serial number will be mentioned in the insurance policy.
- A home insurance policy covers damages occurred from:
Fire, explosion, lightning, theft, flood, storm, cyclone, terrorism, riots, strikes, landslides, leakage, earthquakes and other natural calamities.
- A home insurance policy does not cover damages from/to:
War, part of property used for commercial activities, willful property damage, property damage occurred due to property abandonment, exclusions mentioned in the policy, damage to the land that is not a part of the structure, collectibles, antiques, bonds, cards, property documents and cash damage. One should remember that earthquake coverage will not be available for an individual apartment and a theft cover cannot be availed if the property was abandoned for more than 30 days or if the domestic help is involved in the theft.
How does a home insurance policy work?
Since a home insurance policy covers the structure and its contents, it is important that the property owner decides his insurance needs keeping in mind his premium payment capability and other property related aspects. However, the property owner can also check for different types of policies that can cover specific needs. Not just this, he should also check for the amount of depreciation in a policy, as the cost of replacing a lost or damaged item will be reimbursed only after subtracting the depreciation and considering the age of the item.
A buyer can buy an insurance policy based on the value of the property or the cost of the household items with a fixed premium. Eventually, these premiums when paid on a regular basis will insure the house and its contents, subject to the policy.
How can one get the best home insurance policy?
A home owner can shop for the best home insurance policy based on the amounts of coverage for his home or its contents. It is always better to choose a long term home insurance policy such as 10 years, as it will not just avoid the difficulties of renewing the policy often but will also fetch discounts on premiums. In case of an increased valuation of a property (due to the increased construction rates), the home owner should also consider revising the sum insured. There are flexible options of choosing either an annual cover policy that allows one to revisit the adequacy of the sum insured each year or a multi-year policy that possibly offers huge discounts of up to 50 percent, subject to the tenure. However, the home owner should check the claim settlement record of the insurer and should ensure it is customer friendly.
Besides these general policies, a home insurance company also offers various add-on covers for individuals residing in a rented accommodation while their home is under renovation. Also if the individual has let his house and there has been damage on the house, the home owner can claim cover for the loss of rent within the period specified in the policy and not beyond.