Earthquake peril is an extension of fire policy and hence if someone wants an earthquake cover he will have to take fire insurance with an extension for the earthquake.
Earthquake in Delhi and other parts: From Jammu and Kashmir to Rayagada in Odisha to Rajkot in Gujrat to Akola in Maharashtra to several parts of Delhi NCR, there has been a spate of earthquakes, especially over the last few weeks. The earthquake insurance in India has emerged as a risk-cover that one should not ignore. The occurrence of earthquakes is, however, a regular phenomenon but a series of tremors in a gap of a few days may have left many perturbed.
In addition to the risk to lives, such incidents pose a threat to one’s dwellings. And, home after all is the most expensive asset that most of us hold. Not to worry, if you hold an earthquake policy to take care of any unforeseen natural calamities.
If you wish to insure your home against financial loss on account of an earthquake, there’s an insurance policy for it but remember – Earthquake insurance policy doesn’t come as a separate policy. “A Standard Fire insurance policy provides protection against various kinds of incidents which may cause loss to property like Fire, explosion, Flood, Cyclone Landslide etc. Although Earthquake is not part of standard cover, it can be given as an add-on cover with Fire policy if a homeowner makes a specific request and pays an additional premium for it. It is not available as a separate insurance policy,” informs Rakesh Jain, ED and CEO, Reliance General Insurance.
There is no one exclusive insurance policy to cover risks from earthquakes as there is no standalone earthquake cover. One will have to buy Fire insurance coverage and then add earthquake cover. “Earthquake peril is an extension of a fire policy and hence if someone wants an earthquake cover he will have to take fire insurance with an extension for earthquake, says Dr. Shreeraj Deshpande, Chief Operating Officer, Future Generali India Insurance.
How is premium determined
There are certain high-risk zone and other areas could be low-risk ones. But, the premium for earthquake insurance is the same across zones in the entire country. The only difference arises based on residential or commercial use of the real estate property. “While all the districts across the country have been classified as high risk or low-risk zones, but for an individual dwelling policy the premium rate is common irrespective of the zone. However, for property used for commercial purpose the rate will differ based on the classification of the zone in which property is located,” says Jain.
Reinstatement Value or Market Value
While buying earthquake insurance, one will have to choose between Reinstatement Value or Market Value of the property which is to be insured. Making a choice between the two is important. “To ensure that a person taking insurance does not have to spend from his own pocket for repairs following damage due to earthquake, the insurance policy should be taken on the cost of reconstruction of the structure, which in insurance parlance is termed as ‘Reinstatement Value’ or RIV. If insurance is taken on RIV basis, depreciation is not deducted for the years of usage of a building from the cost incurred on repairs, ” says Jain. Therefore, at the time of buying insurance one must take care to declare the current cost of construction as value to be insured and not value of the house at the time of purchase, adds Jain.
But, what if one opts to insure for the Market Value? “On the other hand, one may opt for depreciated value also known as ‘Market Value’, where depreciation is deducted based on the usage of the building. This is not recommended as it does not fully cover the expenses which would have to be incurred to repair a building structure following damage,” says Jain.
At times, people carry out out additional construction in their home that does not comply with the approved layout. In doing so, the claim may be denied. “At the time of insurance, insurance company gets the proposal form filled on good faith however if the insured has carried out any illegal construction or does not comply with the approved layout the insurance company may deny the claim,” informs Dr. Deshpande.
How much it costs
The cost of insuring your home may not be much. “At present, its Rs. 5 per lakh of sum insured excluding tax. Currently, GST is applicable to insurance policies at a rate of 18 per cent of the premium. A long-term Standard Fire policy along with Earthquake extension can be taken by a house owner for a period up to 20 years. This not only helps in avoiding the hassle of payment of premium every year but also entitles the insured to avail a good discount depending on the number of years for which policy is taken,” says Jain.
It is better to insure your home whether or not there is a home loan taken against it. The risks are varied and covering them on all fronts gives peace of mind and saves a lot.