Your house is one of your biggest assets and it is prudent to insure your house and its contents.
WHAT IS HOME INSURANCE?
Home Insurance can be of two types:
- Basic Fire Insurance Policy.
- Comprehensive policy or the Householder’s Package Policy (HPP).
Fire insurance policy covers your house against:
Fire and other allied perils including lightening, storm, flood and riot.
Some insurers may ask you to pay an extra premium in order to cover disasters such as earthquake and landslides. You can also insure your house and contents against terrorism by buying an add-on cover.
HPP on the other hand provides a little more:
A Basic Cover – insures the structure of the building against fire and other allied perils.
A second Cover – insures the contents of the house.
For example – your Tenant can opt for cover for just the contents.
A HPP also offers optional covers that insure contents of your house against burglary, damage, mechanical or electrical breakdown.
HOW IS THE SUM INSURED CALCULATED?
The value of your house has three components: land, building and locality costs. Insurance will cover only the building cost. For example, if the market value of your house is Rs.1crore, of which the building cost is Rs 30 lakhs, your policy will insure only Rs 30 lakhs.
But, what happens when the entire house is brought down? (Think Chennai floods or the Uttarakhand disaster where rows of houses got flushed away).
Here, if the land is yours, you will be able to rebuild the house.
But if you have an apartment, you alone can’t reinstate the house. It is hence wise to buy insurance for entire premises if you are a part of a housing society or association.
TWO WAYS TO INSURE YOUR HOUSE
- On the market value basis or depreciated cost basis.
- On reinstatement basis.
Market value vs Resale value
In insurance, market value is akin to the value of your house after factoring in depreciation. The Insurer will depreciate the market value by 2% per annum going up to 100% in 50 years.
Reinstatement on the other hand is the value of reconstructing the house. The insurer in this case will not deduct depreciation.
Advice- Go for reinstatement cover even in case of the contents of the house. But keep in mind that the insurer will settle the claim only after the house is reconstructed. Some insurers may make partial payments to help you reconstruct the house.
WHAT HAPPENS IF YOU ARE UNDER-INSURED?
Insurance claim in this case will reduce proportionately. Let’s say, you buy a building cover for Rs.5 lakhs. After five years, your insurer assesses its cost of construction to be Rs 7.5 lakh. In this case you have paid for only two-thirds of the risk and therefore you will be paid only two-thirds of the claim.
WHAT’S THE COST OF A HOME INSURANCE ?
Insuring the house and its contents is not very expensive.
For instance, for a sum insured of Rs.30 lakhs for the building and Rs.5 lakh for the contents a pure fire insurance cover that covers against fire and other allied perils along with a terrorism cover would come to about Rs.2,000 for a year. Pack in burglary and theft cover for a sum insured of Rs 5 lakh and the premium will be Rs 3,155. Add additional cover for breakdown domestic appliances for a sum insured of Rs 4 lakh, the policy will come for about Rs 5,600 for a year.
WHAT HAPPENS WHEN A CLAIM ARISES?
It’s important to cover your house, but do not ignore the claims process. At the time of a claim the insurer will have the damaged goods inspected thoroughly. Therefore you will need to ensure that you have made the right declaration and you have sufficient proof.
The Insurer can refuse claim in case of subsidence building or poorly maintained building or unauthorized construction.
To know more about this policy click here – https://www.bankbazaar.com/insurance/home-insurance.html