Your house protects you and your family from multiple types of risks. That makes it only fair that you safeguard your protector from all the risks that it is exposed to. For most of us, a home is an investment of our lifetime and that makes it all the more important for us to secure our biggest investment against all possible risks. With rising stakes, it becomes an essential to ensure that our home is protected against any untoward incidence that has major financial implications.
Your dream house can be damaged by a number of unforeseen and unpredictable factors. There are multiple types of risks that a home is exposed to. It can catch fire due to short-circuit or due to an accident inside the kitchen. It can get burgled in your absence. It can get damaged due to a natural calamity like lightening, flood or an earthquake. Any damage to your home and consequent financial loss can drain you emotionally as well as financially. In case of major loss to your property, it can be difficult to restore everything due to the huge amount of money involved.
Traditionally, Indian homeowners’ have been somewhat lukewarm towards Home Insurance. A Home Insurance was considered as an avoidable expense in India till recently. However, with rising cost of (home) construction, it is now that the Home Insurance is gaining attention from the homeowners as an important protection product. There have been a number of instances of families having become the victims of natural disasters in which their houses were seriously damaged. Thefts are common; however, stakes have gone up of late with homeowners’ preferences for high-value electrical/electronic gadgets and expensive furniture and other contents. What can protect you from a potential financial liability in the event of damage to your house is a Home Insurance.
Like Health Insurance policy that protects your finances against medical conditions or accidents, a Home Insurance policy protects your house and its contents from different types of risks like accidents and damages. It protects your house from natural as well as man-made disasters. It also helps you protect the content of the home from getting damaged or stolen.
A Home Insurance comes with a number of benefits and is now becoming an essential requirement for homeowners. For the uninitiated, it sure helps to know what Home Insurance is all about and what is and is not covered under a standard Home Insurance plan.
What is covered?
You can get your house or its contents insured as per your requirement and budget. A standard Home Insurance comes with a mandatory fire cover that gives you complete protection in case fire takes place at your house due to gas cylinder explosions or an electrical short circuit. You can also opt for the burglary cover that is offered at an incremental cost and covers theft and larceny. And for an additional premium, you can also protect valuable contents of your household. Most insurers offer 25% discount on the fire section and additional 15% discount on the burglary section.
What is not covered?
All insurance plans come with a list of exclusions or the losses that are not covered under the policy. In the case of a standard Home Insurance, losses due to the general wear and tear / depreciation or consequential loss of any kind, willful destruction of the property, property under construction, kutcha property / construction, resident cum offices, resident cum shops, resident-cum-godowns and open land are not covered under the insurance policies offered by all insurance providers.
It might be interesting to note that the pests are not considered as big disasters that can damage the structure of you’re a like the earthquake or flood, and insurers typically do not cover pests under the Home Insurance. However, you can make additional efforts to keep you home safe from harmful insects, cockroaches, flies, etc. Pest control services can be purchased from specialized providers.
How much to Insure?
The Sum Insured on a Home Insurance is decided as per the reinstatement value, i.e., the amount it takes to restore the loss to the house, and not the market value of the property. The average reconstruction costs in India today range from Rs 1,650 per sqft for a bare-minimum to Rs 2,050 per sqft for better-quality construction¹. With a standard Home Insurance policy, a 2,000 sqft house can be insured for Rs 33-40 lakh, the annual premium for which is in the range of Rs 2,500 -3,100 (only structure)². The contents of the house can be covered at an additional cost depending on the market value of insured items. The overall cost of Home Insurance policy can be lowered if the policy is purchased for a longer term, of say 5 years, as a result of discounts offered by insurers for staying longer with them. If your home is in the urban area that has lesser risk of riots and terror attacks, then you can exclude these risk factors from your policy and avail additional discounts against these perils.
What’s the reinstatement value or re-building cost?
In simple terms, Reinstatement Value is the amount it takes to restore the loss to the house in an untoward event. Considering the latest building rates and Reinstatement Value of your house, the Sum Insured is quoted by the company. It is preferable to take a larger cover for absolute safety. Home insurance quote depends upon various factors such as if the premised to be insured is rented or owned accommodation, the Type of property (flat or individual house), age of the property and the coverage type (the structure or the content or both). The major factor that determines the coverage amount is reconstruction cost of the house. Reconstruction cost is ascertained by the following formula: Total constructed area X Construction cost per square feet
The author is Executive Director, HDFC ERGO General Insurance Company Limited