Need for a Higher Alert

Chandralekha Mukerji   Delhi     Print Edition: September 2011

A standard home insurance brochure tells you that the policy will protect the structure of your house and its contents from perils such as fire, flood and earthquake. In case of loss due to risks listed in the document, the insurer will pay on the basis of the house's reconstruction cost. The reinstatement value is calculated on the basis of the built-up area and the construction cost, generally fixed by the company.

The terms are therefore straight if the house is on your own land. You just have to estimate the cost of rebuilding ' which should be the sum insured' and the insurance company will pay accordingly in case of loss.

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However, if you own an apartment, which is equally exposed to the dangers of getting partially damaged or completely razed by a natural or man-made calamity, the policy document may raise some queries in your mind.

Since the policy covers the reconstruction cost, how is the sum insured calculated for a single flat in a building? Can you buy insurance for such a property at an individual level or do you have to approach the insurer along with other flat owners? How will the insurer compensate, since there will be more than one claimant in case of damage to the building? We try to answer these questions and suggest things to be kept in mind while picking a plan for your precious abode.


Usually, housing societies get the structure of the building insured. This means you have to insure only the contents of the house such as jewellery, electronics and furniture. If the society hasn't insured the building, you can buy a cover individually as well.

The insurance plan for an apartment has the same underwriting principles and sets of inclusions and exclusions as a policy for an independent house, irrespective of the floor on which the flat is. There are no additional features either.

"The insurance is done considering the built-up area and the cost of reconstruction," says Neelesh Garg, executive director, ICICI Lombard General Insurance. If you feel the society's insurance is inadequate, buy an individual policy as a top-up cover.

"The society not having any insurance or having inadequate cover will in no way prejudice the claims of an individual flat owner," says Balaji Cuddapah, senior vice president, commercial lines and risk engineering, Bharti AXA General Insurance.

When Under Construction...

You cannot buy a cover for an individual apartment in the course of its construction since it is part of the entire building structure. While a building is under construction, it should ideally be covered under a project insurance policy taken by the builder.

This would be in place until the construction is completed as per the approved plan. After the completion of the project, either individual flat owners or all of them together, as a society, can buy the insurance cover.

In case it is a private bungalow or an independent house which the customer himself or a builder is constructing, then the owner can take a cover for the same and change it to a regular home insurance cover after the completion of construction.
An insurer can reject your claim if any commercial activity is being carried out from your house. But what if the flat is covered under a common policy taken by the society as a whole and your neighbour violates the policy terms? Can this lead to rejection of your claim? The answer is no. "Such activity by a neighbour will not affect the claim as long as the flat owner doesn't breach the contract himself," says Ajay Bimbhet, MD, Royal Sundaram Alliance Insurance.

"Even if the insurance has been taken through an association, each flat owner gets a separate cover. An insurance contract is concluded based on declaration by a proposer wherein occupancy is also declared. So, if your declared occupancy has not changed, for example from residence to a shop, the policy will continue and the claim will not be affected even if your neighbour has breached the contract," he says.

The only difference between buying a cover for an independent house and an apartment relates to common areas such as compound walls, staircase, etc.

"The whole apartment, including the common area, can be insured only by the residents' association on behalf of all flat owners. In such a case, a copy of the policy is given to each flat owner with details of the sum insured for individual flats. If an owner feels the sum is insufficient, it can be increased through the association only," says Bimbhet.

If a single flat in a building has been insured the cost of reconstruction of the flat is payable, to the flat owner, but up to the sum insured. Even if the proposer was the association, there is a provision to settle the claim with individual flat owners, to the extent of damage to the flat, provided the association gives a no-objection certificate. However, if the association takes up reconstruction, the amount will be paid to the association only.


By and large, the covers and premium rates with various insurers are the same. Therefore, shopping for home insurance is not very difficult. However, there are a few things you should keep in mind.

Adequacy of sum insured: Since sum insured is the basis of compensation, it is important that it reflects the correct property value. Most people make the mistake of choosing the sum insured equal to the market value of the house. However, the company pays on a reinstatement basis, which keeps fluctuating with construction costs.

"On an average, one can take a 10-15% increase in the cost of construction (this differs from city to city) every year. One can check construction rates from the municipal corporation or real estate websites. However, arriving at an exact figure is difficult," says Tapan Singhel, CMO, Bajaj Allianz General Insurance.

A customer can also opt for an escalation clause for increasing the sum insured every year. "The escalation can be up to 25% of the sum insured," says Karan Chopra, head of retail business, HDFC ERGO General Insurance.

Tenure of the cover: You can either go for an annual cover or choose a multi-year policy. While the annual policy will give you the option to revisit the sum insured's adequacy every year, a long-term policy offers discounts which can be as high as 50%, depending on the tenure.

Service: Though most products look alike, the quality of service may differ. So, it will be wise to check the claim settlement record of the insurer. A customer-friendly approach to reporting and handling of claims will be of immense help in the event of a loss.

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