Mr. A’s flat in a high rise was recently gutted in a massive fire which broke out due to short-circuit. His entire property, contents, including all important documents, valuables, electronic items, were destroyed in the fire. Unfortunately, Mr. A learnt the importance of home insurance the hard way.
Our home is one of the costliest assets we own and we entrust our major life savings into buying it. However, we do not realise that our home too needs protection in the form of insurance and is rarely the cover to figure on our buying list. Unforeseen situations like burglary, fire, earthquake, riots, floods, etc. can destroy our most prized treasure. In present times, the incidences of fire in high rises have become frequent. Also, floods due to incessant rains in various towns and cities have heavily damaged many houses. In case a house gets damaged, the emotional and financial pain of rebuilding a house or reinstalling its contents is painful, difficult and tedious. It is thus imperative to buy a home insurance policy to cover the associated risks and at least mitigate the losses. Let us examine various features of a home insurance policy in general.
Generally, a standard home insurance policy covers the house structure and its contents against any loss and damage. There are many policies which offer standalone covers for property and household articles. It is however advisable to go for a comprehensive insurance plan which covers both. A standard home insurance plan is broadly divided into 2 sections and includes the following:
1.Fire and Special Perils:
Under this cover, the home of an Insured and its contents is covered against the following loss and damage
Fire, Lightning, Explosion/Implosion
Aircraft Damage
Riot, Strike, Malicious and Terrorism Damage
Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation.
Impact Damage caused by any Rail/Road vehicle
Subsidence and Landslide, incl. Rockslide
Bursting and/or Overflowing of Water Tanks, Apparatus & Pipes.
Missile Testing Operations
Leakage from Automatic Sprinkler Installations
Bush fire
Earthquake – Fire & Shock
Such a plan covers the entire structure of the house and also includes connected utilities, sanitary fittings, fixtures and fittings, etc.
2. Burglary and Theft
Here, the company will indemnify the Insured against any loss to the Insured Premises or Contents caused by actual or attempted burglary and/or theft.
General Exclusions:
Any loss or damage caused by
War, invasion, act of foreign enemy
Nuclear weapons, radiation or contamination by radioactivity from any nuclear fuel.
Electronic equipment from over-running, excessive pressure, short circuit, electricity leakage
Depreciation or wear & tear
Contents of consumable nature
Motor vehicles, pedal cycles or livestockValuables, Jewellery and/or Precious items unless specifically stated or in excess of a certain amount.
Who can buy Home Insurance Policy?
Any Owner Occupant of a Flat/Apartment/Independent Building can purchase house insurance policy for his Property and/or Contents.
It is a myth that a Tenant cannot buy a house insurance policy. A Tenant can insure the contents in the Flat / Apartment /Independent Building occupied by him for residential purpose.
Add on covers:
Besides the standard home insurance policy, an insurer can buy separate covers or add-ons along with the basic cover at an extra premium. These are:
Loss of rent or alternate accommodation
Personal Accident
Electronic Equipment such as mobile phones, laptops, tablets, etc.
Public Liability
Jewellery & Precious items
Deciding on Sum Insured:
There are different sum insured (SI) options offered by insurance companies for the building structure. These include:
Sum Assured on Agreed Basis: Here, the SI for a flat/apartment is arrived at by multiplying the ‘total sq feet area of the flat by the value per square feet, i.e. the prevailing market value. Area of the flat is taken from the Sale Deed & Per Square feet value is based on Ready Reckoner issued by the Revenue department.
Sum Assured on Reinstatement Value Basis: This is also known as ‘cost of re-construction basis’. Sum Assured is arrived at by multiplying ‘area of the flat/house’ by ‘cost of construction’ on present day basis. The cost of construction may not remain same every year, so some home insurance plans offer ‘escalation’ clause.
Sum Assured Indemnity Basis: In this method, depreciation (natural wear & tear) value is deducted from the Reinstatement value.
Since sum insured is the basis of compensation, it is important that it reflects the correct property value. Instead of SI based on market value, it is better to opt for SI on reinstatement basis consideration the fluctuation in construction costs. Note that a home insurance policy does not cover the cost of land. For household contents, SI options are available on replacement value basis or indemnity (depreciation) basis.
How much does it cost?
Home insurance is very cheap. For example, consider a standard insurance policy for a sum insured of Rs.40 lakh for the building (here means home structure) and Rs.5 lakhs for its contents. The premium would come to an average Rs.7000-7500. This is roughly about a nominal Rs.600-650 a month.
Important points to note:
Before buying a home insurance policy, it is advisable to download the ‘product brochure’ and ‘policy wordings’ document. It is important to understand the inclusions and exclusions on the House Insurance policy. Read the exclusions carefully which vary from company to company.
As it is difficult to list out everything you own after it is lost, especially at the time of a crisis, it is important to prepare an inventory of your house-hold contents beforehand and keep it in a safe place. It is a good idea to scan the copies of bills of costly / luxury items and save them online.
Since the cost of construction usually keeps rising, it would be prudent to review your home insurance cover every few years. You can also opt for a policy which offers escalation clause with regard to construction cost.
You can either go for an annual cover or choose a multi-year policy. You can benefit from a multi-year policy which offers discounts depending upon the tenure.
In case if you are planning to sell your property, you (insured/owner) need to inform the insurance company and get the policy cancelled as you will not have an insurable interest in the property.
There are no tax deductions or tax rebate on payment of home insurance premium.
At the time of a claim, the insurance company deploys the surveyor and the claim is settled once the insurable interest is identified and the losses assessed.
To conclude, home insurance is important and essential in present times. It is advisable to go for a comprehensive home insurance cover to avoid last minute surprises.