Tips to protecting your home and hearth against natural calamities

When buying a home insurance cover, opt for reinstatement value as the sum insured

Mild tremors have hit the national capital region (NCR) a couple of times in recent weeks. Experts say these are sometimes a precursor to a bigger shock. They did reignite memories of the havoc caused by major calamities such as Latur (1993) and Bhuj (2001) and once again underlined the need to buy an oft-ignored cover—home insurance.

Less than one per cent of households in India have home insurance. Insurers say there is usually a spike in queries after a region is hit by a natural disaster, but then interest wanes. “Whenever a major natural disaster occurs in India, the ‘protection gap’, which is the gap between incurred economic losses and insured losses, remains obstinately large in India—approximately 70 per cent,” says TA Ramalingam, chief technical officer, Bajaj Allianz General Insurance. He emphasises that all home owners, especially those living in calamity-prone regions, must buy home insurance.

What is covered: A comprehensive home insurance policy usually provides protection against earthquake, fire, lightning, impact damage, explosion, cyclone, riots, landslide, burglary, and so on.

Some insurers also offer a policy called ‘standard fire and special perils policy’, popularly referred to as a fire policy. This policy provides protection against fire, explosion, flood, cyclone etc., but may not against an earthquake, which one may have to buy as an additional cover.

Some of the key exclusions in this policy are terrorism cover (some companies provide it as part of the main policy and others as an add-on), wear and tear, damage to the structure due to damage to an adjacent property, and damage inflicted by the insured himself to make a false claim.

The essential point here is that policies from different insurers may have different names and may cover different risks. “Sometimes, the person selling you the policy may not be completely informed about what is covered and what is not. So, visit the company’s website and check out the policy features and exclusions yourself,” says Naval Goel, chief executive officer, PolicyX.

These policies come with a deductible, though the amount is small—around Rs 5,000 or so. The deductible is the portion of the claim that the insured has to pay out of his own pocket. Anything above this amount is paid by the insurer.

Choose the proper sum insured: When deciding on the sum insured for the structure of your house, you have two options. You can buy the ‘reinstatement value’ or the ‘market value’. The reinstatement value is essentially what it will cost today to reconstruct your house if it gets destroyed. Market value, on the other hand, is the depreciated cost of the structure, depending on the number of years that have elapsed since it was built.  

Experts recommend choosing the former as the sum insured. “At the time of buying insurance, declare the current cost of construction as the value to be insured. Do not buy insurance equivalent to the market value as it will not fully cover the expenses that will have to be incurred to repair a structure following damage,” says Rakesh Jain, executive director and chief executive officer, Reliance General Insurance Company.

In case of assets within the house, such as furniture, fittings, electronic items, etc., Jain recommends using reinstatement value to decide the sum insured. On the other hand, if you are buying insurance for your clothes, which have a limited life, he advises using depreciated value.

An older house can also be insured, not just newly-built ones. Again, buy sum insured equal to the reinstatement value for an old house.

Cost of home insurance: The premium is in the range of Rs 75-150 per lakh of sum insured per year. If there are guards manning your house, or you have fitted it with a burglar alarm and other security devices, inform the insurer. This could lead to a discount on your premium.

Longer-tenure policies of up to five years are also available. However, experts don’t favour them. “It is better to go for a one- or at most two-year policy. You could get a better rate next year, or some insurer may come out with a plan offering better features,” says Goel.

Claims for home insurance tend to be rare, but they also tend to be large. So, besides comparing premium and features, Goel suggests opting for a reputed brand so that you are not put in a position where you have to fight for your claim. He also suggests going with an insurer with a higher claim settlement ratio.

Limited cover for jewellery: Home insurance policies do cover jewellery, but often there is a sub-limit of 25 per cent on the cover. Jain suggests that customers should obtain a valuation certificate for each item of jewellery from a reputed jeweller and submit it to the insurer. A home insurance policy covers jewellery both while it is in the house and worn outside. It also covers jewellery kept in a bank locker, provided you have submitted to your insurer details of each item kept there. Those who need coverage for a higher amount than provided by their home insurance policy should, however, purchase a standalone jewellery cover.

When disaster strikes: Inform your insurer at the earliest in case of damage to your house due to a natural calamity. This can be done by visiting the insurer’s website or by calling its toll-free number. “Intimate the insurer within 24-72 hours of an eventuality,” says Indraneel Chatterjee, co-founder and principal officer, RenewBuy.com. He informs that a first information report (FIR) is not required for claims related to natural disasters such as an earthquake.

In the wake of a disaster, a surveyor visits the home to assess the extent of the damage. “Do not interfere with the claim scene until the surveyor has completed his job, and provide all facts related to the loss to him,” adds Chatterjee.

It is advisable to keep a soft copy of your policy document. However, in case your policy documents do get destroyed, you can retrieve them from your insurer by providing your KYC (know your customer) details. Loss of property documents does not usually hamper a claim these days. Put together the following documents for filing your claim: a copy of the insurance policy, duly filled claim form, and a newspaper clip on the incident, if available. 

 

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