The best option would be to go for a comprehensive insurance which covers both contents and structure. In the case of home insurance, the size of the house, locality, etc., will determine the sum insured and cost of insurance.
If you have taken a home loan to buy the house, the home insurance will work as security for your loan. In some cases, banks themselves ask loan seekers to buy home insurance. This is because if the house you have bought gets destroyed in some disaster, your home insurance will pay you enough to rebuild the house or pay-off your home loan. Here are some factors you need to take into account before deciding to go for home insurance.
Content and structure insurance
There are two types of home insurance policies available: Content home insurance and structure home insurance. While the first one refers to the insurance of only the contents or the goods a house may contain, the latter covers the house structure. The best option would be to go for a comprehensive insurance which covers both contents and structure. In the case of home insurance, the size of the house, locality, etc., will determine the sum insured and cost of insurance. One simple formula that most companies apply is the area of the house multiplied by the construction cost in that locality. For example, if you buy a house with a carpet area of 2000 sq. ft. and the standard cost of construction in the locality is Rs 2500 per sq. ft., then the sum insured will be Rs 50 lakh and accordingly, your premium will be calculated. If you want the house contents also to be insured then the cost of the contents will be taken into account to calculate the overall premium.
House as business premises
Residence-cum-office and residential properties being used as business premises are not difficult to find in an urban area in the country. Insurance companies apply different criteria while determining insurance covers for such premises. Some insurers may simply refuse to provide home insurance to such places. Some others may decide to exclude the portion of the house being used for business, and the goods stored there in, from insurance cover. There are, however, insurers who provide home insurance to such places but at a much higher cost. Also, the kind of business you are running is also taken into account before issuing home insurance.
Construction quality, security
While determining home insurance, most companies take into account the risks posed to the house by natural disasters such as earthquakes or floods, or man-made disasters like fire. So, if your house is earthquake resistant or designed to protect the structure in the face of a cyclone, the insurers will be willing to give work out a lesser premium than otherwise. Similarly, if the house has fire-fighting equipment installed, it will work to lessen the insurance premium. The other factors that may help you get a good home insurance include provisioning of security devices such as fire alarm or an anti-theft device installed on the premises, and a 24×7 security guard at the doorstep. How these measures affect insurance premium is explained by the following example: A Rs 50 lakh structure insurance plus Rs 10 lakh content insurance by HDFC ERGO General Insurance costs Rs 7,646 if you do not have any security measures provided on the premises. However, if you have a burglary alarm installed and also have a 24×7 security guard at your house, the annual premium for the same policy will come down to Rs 7,222. So, it is advisable to do a bit of research about different home policies that are available in the market, and make an intelligent decision suiting one’s requirements.
The author is co-founder and director, Policybazaar.com