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Non Life Insurance - Insuring your home, valuables may be as important as housing loan cover

25 Apr 2013

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Disasters, natural or man made, often serve as a rude reminder about buying insurance covers. Tremors in Delhi caused by the recent massive earthquake in Iran and the building collapse in Mumbra, near Mumbai, were two such incidents. Sure, the issue is a bit complex in the latter case, but it shouldn’t prevent you from thinking about the importance of buying a home insurance cover. Buying adequate insurance cover for your house, particularly if you have a home loan or keep valuable items at home, is the only solution to keep such unpredictable events from ruining your financial stability.

"The requirement of a home insurance was overlooked and understated in India. However, the scenario has changed over a period of time. Today, there are many convenient options available in the market that help one secure not only the property but also their belongings. The youth are also investing in homes, offices, etc, to ensure that all their assets are protected at the time of crisis," says Mukesh Kumar, member of executive management and head, strategy planning, HR and Marketing, HDFC ERGO. Now, most home loan borrowers are familiar with home loan insurance cover, thanks to their lenders and their insurance partners almost forcing them to buy a cover.

However, home insurance is quite different. While home loan insurance offers to repay the loan if the policyholder dies before clearing the loan, home insurance comes into play if your property is damaged due to man-made or natural calamities. Such policies offer cover for both the structure as well as the contents in the house. Insuring your home, valuables may be as important as housing loan cover However, you need to specifically ask for the contents cover if you intend to insure your belongings in the house. You only need to fill up the proposal form listing all the items you want to cover while buying the policy. You will have to furnish first information report (FIR), fire brigade report or other details the insurer may ask for at the time of claim settlement. Coverage is extended against damage due to earthquake, fire, lightning, cyclone, bursting or overflowing of water tanks and so on.

Some policies also offer additional coverage against terror attacks, burglary and theft, while in some cases these are part of the base cover itself. Policyholders receive compensation for the replacement value of their property and contents inside the house. "So, the sum insured for the building should neither be the cost of acquisition nor the current market value of the house, but today’s construction cost because the market value of the building includes cost of land on which the house is built," advises Sanjay Datta, chief, underwriting and claims, ICICI Lombard.

Similarly, for household appliances, gadgets, jewellery, furniture and other equipment, ascertain the cost of replacing them. In other words, market value of similar products, minus depreciation (depending on the items) will be the sum insured. "However, the claim amount payable would be the amount required to bring the damaged item to the same condition as it was prior to the damage, subject to the adequacy of the sum insured," he explains. Loss of jewellery and other valuables are covered, subject to the sub-limits or ceilings mentioned in the brochure. For instance, your policy could specify that the valuables cover will not exceed 25% of the total content sum insured or Rs 1 lakh, whichever is lower.

Hospitalisation expenses, too, are paid for if you are injured during the incident. Clearly, the utility value of such covers is quite high. In fact, most banks today advise home loan borrowers to buy this cover. Home loan agreements contain a standard clause that requires lenders to insure their house adequately against disasters. However, even otherwise, it is in your interest to get your home insured. Remember, if your house is destroyed during such mishaps, you will be left with no shelter, but the burden of repaying the home loan will continue. "Even if it is not compulsory as per your banks to buy home insurance, it makes sense to opt for one. Else, the borrower will have to bear the losses in the event of damages caused by earthquakes or other natural disasters," says VN Kulkarni, chief counsellor with the Bank of India-backed Abhay Credit Counselling.

However, if your bank is keen on selling its insurance partner’s policy to you, compare the features with other products in the market before giving your assent. There is very little variance in product features and premium rates, but choose your policy after a careful comparison. For the structure-only cover, the premium could be in the region of Rs 60 per lakh of sum insured. For example, if your sum insured (built up area in sq ft X cost of construction per sq ft) is Rs 20 lakh, you will have to pay an annual premium of Rs 1,200. Lastly, do not forget to go through the list of exclusions or claims that won’t be entertained by the insurance company.

For instance, your claim will not be admitted if the damage has been caused by natural wear and tear or depreciation. Similarly, you will not be paid if you have deliberately caused harm to your property. Other exclusions include loss due to war, invasion, civil wars, revolution and so on. More importantly, the policy will not come into play if any property or contents are illegally acquired or stored.

Also, if you are operating your business from your house, you should not buy this policy, as it is meant only for residential properties. The policy wordings of such covers could also specify a deductible amount — you need to bear this expense out of your own pocket before the insurer chips in with the rest — for certain items.