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Raise a Strong Protective Wall

Chandralekha Mukherji | Print Edition: May 2011

You have installed sophisticated locks, electronic alarms, fire extinguishers, carried out a thorough police verification of the domestic help and done your best to protect your dwelling. However, we all know that despite the best security and fire protection measures, the risk of thefts and damages due to fire can never be completely eliminated. Also, the recurrent earthquakes and tsunami in Japan are good reminders of how vulnerable and exposed our houses are to natural calamities.

Compared with the measures taken by you to protect your haven, a home insurance policy would prove to be a much more concrete step in covering such risks. Sadly, apart from a steady demand from the high networth individuals living in expensive homes where the risks are bigger, the factor that is driving the sales of home insurance products is it being bundled along with home loans.

"Ideally, every homeowner 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 chief executive officer, IFFCO Tokio General Insurance.

"Though, a negative event such as flood or earthquake generates a lot of enquiries, they don't really have any substantial impact on the sales," adds Karan Chopra, head - retail business, HDFC ERGO General Insurance. While most people choose the best of décor and appliances for their home, there is a perceptible apathy towards home insurance, with very few understanding the need to buy it.

Home insurance policies consider the cost of reconstructing your house and not its market value.
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 to make good your financial losses in case a disaster strikes. "Yet, unfortunately, home insurance policies are the least priority for most and is hardly ever a part of one's financial planning," says Tapan Singhel, chief marketing officer, Bajaj Allianz General Insurance.

Think it might be worth picking a cover? Here we list 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 basic parts. The first part covers the structure while the second part is to insure its content.

Cost of getting a home insurance cover of Rs 26 lakh
Keep in mind that insurance policies cover your home for its reconstruction cost and not for 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 sq. ft and the construction rate determined by the insurer is Rs 1,500 per sq. ft, the sum insured for your home structure will be Rs 15,00,000.

"The idea is to get a cover which will be sufficient to rebuild your house in case any harm comes to the structure," says Yashish Dahiya, CEO, Policybazaar. com.

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, informs Sanjay Datta- head customer service, ICICI Lombard General Insurance.

Those who do not own the property need not protect the structure, but must consider a contents cover.
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 the other," says Dahiya.

INSURING THE VALUABLES

If you live in a housing societyn with insurance cover or have a rented accommodation, you will not need a policy to protect the structure. However, they 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 equipments, 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," informs Dahiya. Also, beware of the several claim limits. "There are sub-limits to the claim one can make in various sections of the home contents cover segment, though they differ from one insurer to the other. Jewellery is one item which generally has a sub-limit of approximately 10% of the total asset cover," says Dahiya. So, if your total content cover is for Rs 1,00,000, in all you can claim is Rs 10,000 for loss of jewellery.

To ensure that you have enough for paying rent in case of total loss, opt for an alternate accommodation cover.
The exclusion list for this segment is pretty extensive as well.

Important items like cash, stocks or bonds, 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 cover losses where the insured's domestic staff is involved, directly or indirectly. Moreover, if you are working out of your home, the policy won't cover the section being used for commercial purposes and you would 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 wordings carefully, you might feel a need to extend the scope of coverage beyond the standard protection it gives and fill up the gaps.

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 materials like marble or flooring, wooden work, etc., have been used in your home. This will also apply when you do some renovation after you have bought the policy.

 WHAT'S COVERED
  • Fire, burglary and theft
  • Riot, strike and malicious damage
  • Explosion and implosion
  • Earthquake, flood, lightning, landslides, etc.
  • Missile testing operation and aircraft damage
  • Bursting or overflowing water tanks, apparatus and pipes, leakage from sprinklers
WHAT'S NOT
  • Loss or damage by the insured or his employee
  • Cash, cards, stock or other documents
  • Painting, works of art and antiques
  • Loss or damage to any illegally acquired property
  • Loss or damage occurring when the home remains unoccupied, for a long period (usually 30 days)
  • Section of the house used for commercial purposes
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 sum assured for the structure. To ensure that you have enough for rent and other expenses in case of total loss, opt for the living expenses cover for an additional few hundred rupees.

"Most of the insurers provide an optional cover for an alternate accommodation cover for a limited period, which is usually restricted to 30 days," says Dahiya. Some policies also offer riders like the architect's fee, cost of removing debris, public liability, personal accident, terrorism attacks, etc., by paying some additional premium. Select these covers only if you need them.

GETTING THE BEST DEAL

The best way to compare and shop for a home insurance cover is to ascertain the types and amounts 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 price quotes.

Opting for a long-term policy of, say, 10 years not only saves you from the hassle of renewing the policy again and again but can get you a discount on the premium, sometimes as high as 50%. "Ideally, one can go for a long-tenure cover and avail of discounts. Do ensure that you get your sum insured increased if the valuation of your property, based on construction rate, increases. Else, it will become highly inappropriate to be at a lower cover," advises Dahiya.

"Also, home insurance policies cease to exist when 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.

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