Business Today

Raise a strong protective wall

Chandralekha Mukerji        Print Edition: June 12, 2011

You have installed sophisticated locks, electronic alarms and fire extinguishers in your house, and carried out a thorough police verification of your domestic help. However, the risk of theft or damage due to fire can never be eliminated completely. The recent earthquakes and tsunami in Japan are good reminders of how vulnerable and exposed our houses are to natural calamities as well. So, along with precautionary measures, a home insurance policy would be a concrete step towards covering such risks.

"Ideally, every owner should buy this product but we see that the demand is mostly restricted to the urban centres, especially the metros," says S. Narayanan, Managing Director and CEO of IFFCO-Tokio General Insurance. "Though an event such as a flood or an earthquake generates a lot of enquiries, they don't really have any substantial impact on sales," says Karan Chopra, Head of Retail Business at HDFC ERGO General Insurance.

While most people choose the best of d├ęcor and appliances for their homes, there is perceptible apathy towards home insurance, with very few recognising the need to buy it. The cost of securing your home and its contents is as low as Rs 5 per day for a sum assured of Rs 9 lakh. But this policy will play a vital role in recovering your financial losses in case a disaster strikes. "Yet, unfortunately, home insurance policies are the lowest priority for most and are hardly ever a part of people's financial planning," says Tapan Singhel, Chief Marketing Officer of Bajaj Allianz General Insurance. So, if you think it might be worth picking a cover, here are some points to remember when you go shopping for a home insurance policy.

Protecting the structure
The sum assured for a standard home insurance policy which covers your house against perils such as thefts, floods, fire, earthquakes, malicious damage, etc., has two parts. The first covers the structure while the second insures its content. Keep in mind that insurance policies cover your home for its reconstruction cost and not its market value. The reinstatement value is calculated on the basis of the built-up area and the construction rate decided by your insurer. For instance, if the built-up area of your home is 1,000 square feet and the construction rate determined by the insurer is Rs 1,500 per square feet, the sum insured for your house will be Rs 15 lakh. "The idea is to get a cover which will be sufficient to rebuild your house in case the structure is damaged," says Yashish Dahiya of Policybazaar. com.

Hardly Expensive
Annual premium for an insurance cover of Rs 26 lakh, which includes loss against fire (Rs 10 lakh), burglary of jewellery (Rs 5 lakh), loss of electronic gadgets (Rs 80,000), rebuilding cost (Rs 10 lakh) and rent cost (Rs 20,000) in case of total loss"

Another important factor on which the reinstatement value depends is where the property is located. "Premium rates are standard. However, the actual sum assured may differ from location to location due to difference in the cost of construction," says Sanjay Datta, Head of Customer Service at ICICI Lombard General Insurance. Therefore, if you live in a seismic or flood-prone zone, you might have to pay a higher premium to get the property insured.

Moreover, if you have a basement floor, it might be difficult for you to get an insurer to cover it. "Sometimes, insurers are not willing to include basements in the purview of the policy as the degree of risk in insuring a basement is much higher. Also, the maximum cover amount will differ from one company to another," says Dahiya.

Insuring the valuables
If you live in a housing society with insurance cover or have a rented accommodation, you will not need a policy to protect the structure. However, you must consider buying a home content insurance cover. The second part of the sum assured of a comprehensive home insurance policy is to cover its contents.

This generally includes valuables such as jewellery, electronic equipment, furniture, etc. The sum assured for these assets is calculated on the basis of their market valuation. This means, if there is a loss, the claim will be paid on the value of purchasing a similar new item. However, 'depreciation' is the word to look out for in this section. "The cost of replacing the lost item will be settled after deducting appropriate depreciation on the basis of the age of the item," says Dahiya.

Also, beware of the numerous claim limits. "There are sub-limits to the claims one can make in various sections of the home contents cover segment, though they differ from one insurer to another. Jewellery is one item which generally has a sub-limit of approximately 10 per cent of the total asset cover," says Dahiya. So, if your total content cover is Rs 1 lakh, in all you can claim is Rs 10,000 for the loss of jewellery.

The exclusion list for this segment is pretty extensive as well. Important items like cash, stocks or bond certificates, antique items, collections and other property documents are never insured by any insurance company. Also, do not expect to get the claim payment in case the damage or loss is caused by your domestic help. None of the companies covers losses where the insured's domestic staff is involved, directly or indirectly. Moreover, if you are working out of your home, the policy will not cover the section being used for commercial purposes. You will need a merchant's policy to insure it.

Upgrade the cover
Buying a basic home insurance policy ensures that the building and its contents are protected. However, if you read the policy fine print carefully, you might feel the need to extend the scope of coverage beyond the standard protection it gives and fill in the gaps.

What is covered
  • Fire, burglary, theft
  • Riot, strike, malicious damage
  • Explosion, implosion
  • Earthquake, flood, lightning strike, landslide
  • Damage due to missile testing or aircraft
  • Damage from bursting or overflowing water tanks and pipes, leakage from sprinkler
What is not
  • Loss or damage caused by the insured or his staff
  • Cash, share certificates, other documents damaged
  • Damage to paintings, art works, antiques
  • Loss or damage to any illegally acquired property
  • Loss or damage occurring when the home remains unoccupied for a long period (over 30 days)
  • Section of the house used for commercial purposes
The insurance company has fixed the construction rates according to the location of your property. However, do not forget to revise this value appropriately in case expensive material like marble for flooring, or costly woodwork has been used. This also applies if you get some renovation carried out after you have bought the policy. Also, remember to extend the cover if your home is surrounded by a perimeter wall or has a garage. Include its cost of construction in the total sum assured.

To ensure you have enough to pay rent and meet other expenses in case of total loss of your own house, opt for the living expenses cover. "Most insurers provide an optional cover for alternative accommodation for a limited period, which is usually restricted to 30 days," says Dahiya. Some policies also offer cover for the architect's fee, the cost of removing debris, public liability, personal accident and terror attacks but charge additional premium. Select these covers only if you need them.

Getting the best deal
The best way to shop for a home insurance cover is to ascertain the kind and the amount of coverage you want and then see what different insurers have to offer . This will help you do an apple-to-apple comparison of the prices quoted.

Opting for a long-term policy of, say 10 years, not only saves you the hassle of renewing the policy every year, but can also get you a discount on the premium, sometimes as much as 50 per cent. "Ideally, one can go for a long-term cover and avail of discounts. Do ensure that you get your sum insured increased if the valuation of your property, based on the construction rate, increases. Or else, it will become highly inappropriate to have a lower cover," says Dahiya. "Also, home insurance policies cease to be valid if the premises are left unoccupied for more than a specified time period (usually 30 to 60 days). One should choose a plan which offers maximum protection," he adds.

Courtesy: Money Today 

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