Natural calamity insurance compared to home insurance is very cheap in India. Despite this fact, insurance companies report that less than 1% of people who can afford home insurance actually buy a cover for natural calamities.
Global warming and environmental deterioration have made natural disasters a reality in modern times. Terms such as floods, fires, earthquakes and cyclones, that were seldom heard till a few years ago, have become a recurrent part of community discussions. In the past two years alone, the Indian subcontinent has been introduced to terms like Fani and Gaja that have caused great loss to life and property and uprooted the livelihood of millions.
According to reports, India is a country where a whopping 58.6% landmass is prone to earthquakes of moderate to very high-intensity, over 12% of land is prone to floods and river erosion, and over 50% of its 7516 kilometer-long coastline is prone to cyclones and tsunamis. Further, recently, an article in a leading publication stated that out of over 7500 insurance claims in flood-stricken districts of Karnataka, only 120 were home insurance claims, thus making safeguarding property and real estate from natural disasters a pertinent issue.
What is natural calamity insurance and why do you need it?
It is not a surprising fact that India is a country plagued with natural disasters. In fact, just in 2019 there have been at least 9 states that have suffered flooding due to excessive rainfall. While it is a known fact that awareness of insurance in India is low, awareness for natural calamity insurance is even lower. Natural calamity insurance compared to home insurance is very cheap in India. Despite this fact, insurance companies report that less than 1% of people who can afford home insurance actually buy a cover for natural calamities. Considering the statistics above, this is an alarming trend. Natural calamity insurance covers a person from all kinds of natural disasters like inter alia earthquakes, floods, tornadoes, cyclones, lightening and any other catastrophe created by force majeure (act of god). Most financial institutions in India do not offer standalone natural calamity insurance policies. They are often bundled with home insurance policies.
What does natural calamity insurance cover?
Often an important question that comes to the mind of a homeowner while buying insurance is about what exactly does the policy cover. While a general home insurance policy covers standard situations like loss from theft or fire – not all policies may cover natural disasters caused due to act of god. Thus, natural calamity insurance goes beyond home insurance to cover all kinds of natural disasters that may affect or have the effect of damaging your dream haven. A home insurance policy is generally of two types – cover for content and cover for structure. Apart from these two, policies also have add-ons that cover other potential losses like third party liabilities or other incidental losses.
How much should my cover be?
The value of a home insurance is dependent on 3 factors – land, building and locality costs. The insured amount covers only the building cost. Hence, how much insurance should be taken should be dependent on this amount, so as to cover the total value of loss. If you are living in an apartment, the society should get insurance for the entire premises and an individual can get insurance for the content of a house.
The value of insurance cover that you need to protect your house can be easily ascertained by the market value method (where the cost of the valuables is ascertained after considering depreciation) or the reinstatement value method (where no depreciation of assets or valuables is accounted for). To calculate the approximate sum insured one can easily enter the relevant details about the house like square area, value of the house and value of the contents of the house in an online home insurance calculator and get an estimated amount.
You can add on extra protection from natural calamities to these home insurance policies. This extra protection will protect you from all kinds of natural calamities except wars, loss of earning, and any other conditions. The terms and conditions of these policies should be read carefully before opting in. Other add-ons include protection from terrorist activities, loss in stocks, leakage and water contamination, alternative accommodation etc.
Considering the current climatic situation, one must always be protected against all losses. Before buying a policy, a homeowner must list down his priorities and accordingly select a policy that fulfills his expectations and provides a more than enough risk coverage.
Being stranded in a natural calamity is a horrifying experience altogether. It creates not only physical but mental trauma. Additionally, seeing your priced possession get destroyed in front of your eyes can often drop you into an irrecoverable financial stress. Gone are the times when we used to believe that ‘nothing can happen to us’, since now anything can happen to anybody. Just having a life or health insurance policy is not adequate. A person needs to protect his assets and property as well and thus it is important to invest in a good insurance policy before any disaster strikes.
(By Saurav Basu, Head-Wealth Management, Tata Capital)