How a home insurance policy provides great financial hedging at a nominal cost.
Like life, health and car insurance, a home cover seems like a priority in the aftermath of the Nepal earthquake. Home insurance provides protection for one’s house against natural calamities, including floods, earthquakes, tsunamis or accidents such as fire and theft.
A home cover has two basic features: building and content. The former provides insurance for the building structure against damage and the reconstruction cost is paid if the building suffers complete destruction. It would cover damages caused by fire, explosion and natural calamities like storms, floods, cyclones or earthquakes. The content insurance will include jewellery, electronic goods, clothing and furniture.
Various types of covers are available with different insurers. However, home insurance is not very popular in India because of lack of awareness. One can buy and renew a home cover even online without any documentation and physical inspection of property, unless someone is opting for a higher sum assured or a specific package. Experts say it is better to buy a cover right after taking possession of the house as insurers refuse covers for houses that are more than 30 years old.
People invest life savings in purchasing a dream home, but never seriously consider that a natural calamity or anti-social activities could damage their house. Sanjay Datta, chief, Underwriting and Claims, ICICI Lombard, says many banks and financial institutions insist that the customer buys a home cover and, thus, awareness is increasing in urban regions.
“With an increase in natural calamities like floods, earthquakes, tsunamis, etc, there is an increase in awareness and demand for home
covers primarily in urban areas, though one needs to see if it is sustainable,” he says.
Home insurance provides great financial hedging at a nominal cost. Alok Bansal, CFO & co-founder, Policybazaar.com, says typically a home insurance policy with a sum assured of more than R50 lakh would require physical inspection of property, depending on the insurer. “What makes the situation more grave is the fact that we have the tendency to procrastinate opting for a home cover as we feel nothing can ever go wrong with our house, perhaps because it is immovable vis-à-vis other assets such as a car or bike. Catastrophes like the Nepal earthquake and J&K floods reiterate the relevance of protecting our home and property against such natural calamities,” he says.
In case of multi-storeyed apartments, the housing society should insure the structure against natural calamities such as earthquakes, floods and typhoons. This will come in handy in case of any damage to the physical structure. The cover would only take care of the construction cost of the building. One will have to opt for an individual cover to insure the contents in the house. People living in individual houses or multi-storeyed buildings that are not part of any housing society can opt go for structure home insurance. Opting for a contents and burglary cover will ensure that your belongings are covered against damage from fire, natural calamities or burglary.
Let’s take the example of a home cover from ICICI Lombard. for a 1,200-square-feet house, if the cost of construction is Rs 2,000 per sq. ft, the sum insured will be Rs 24 lakh. The annual premium will be Rs 1,618 (inclusive of taxes) for fire and allied perils and earthquake covers. For covering contents worth Rs 5 lakh, the yearly premium will be Rs 1,742 (including taxes) for fire and allied perils, earthquake and burglary. So, one can get a yearly structure and content package policy for around Rs 3,360.
The cost of buying a home cover is the same, irrespective of the seismic zone. The premium for a yearly policy has to be paid through a single payment and the policy can be renewed every year. However, companies do provide long-term policies such as for three or five years, where a one-time premium is paid and there is a discount.
The sum insured for the house structure is evaluated based on the reconstruction or reinstatement value of the property whereas the sum insured towards the contents of the house, such as electrical appliances, clothes, furniture, jewellery and crockery, is valued based on their market value after adjusting for depreciation. Before buying home insurance, one must read the fine print to understand what is covered and what is not. One must make an inventory of contents, estimate their market value and keep ownership documents of the contents ready. All covers will have standard exclusions such as wilful destruction of property, general wear and tear and atmospheric conditions.
Unlike third-party motor insurance, there is no compulsion to opt for a home insurance policy. However, banks and housing finance companies do encourage a borrower to take a home cover. Many financial institutions have made home insurance a part of the process of acquiring a home loan.