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Home insurance remains a grossly under-purchased product in India. A recent survey by ICICI Lombard General Insurance of 2,000 people showed that only seven per cent had bought home insurance. The figure was this low despite 66 per cent of the respondents being recent home buyers. In view of the fact that home insurance protects an individual’s single most valuable asset, more people should consider buying it.
The basic home insurance policy provides protection against damage to the structure of your house due to perils such as fire, earthquake, flooding, vandalism, etc. The contents of your house can also be covered if you opt for this feature. Besides the dangers mentioned above, the contents will also be covered against burglary. If you live in your own house, buy a comprehensive policy that covers both the building and its contents. Those living on rent may buy content cover only.
Remember that the land on which your house stands is not usually included in the cover. Also, you can’t buy content cover selectively. That is, you can’t opt to get the electronic items insured but not the furniture. Everything, or at least all the valuable items, must be included. When buying pre-packaged policies, do a sound assessment of the perils that your home is subject to and make sure they are included in the policy. Terrorism, for instance, might not be a part of the standard policy and only be available as an add-on cover.
To arrive at the sum assured, multiply the floor area of the house by its current cost of construction. As for the contents of the house, make an inventory of all the valuable items, put their original cost against them, and arrive at a total figure.
There are three methods by which your house can be insured: reinstatement value, market value and agreed value. The best of these is the agreed value option. Here, the value of the house and its contents is agreed upon by the insurer and the insured. Under this option, you can even get the cost of land included. The second best option is reinstatement value. Here, what you are paid is the cost of replacing the product. The worst option is market value where you get a depreciated value of the items covered. “Only a few insurers offer the agreed value option. Reinstatement value is also a good option. I would not advise anyone to go for the market value option,” says Kapil Mehta, founder and CEO, Secure Now Insurance Broker.
At the time of buying the policy, understand the terms and conditions of the policy clearly. Buy the right amount of sum insured and avoid being under-insured. “Having bought a policy, check after every three-five years if the sum assured is adequate, since the cost of reconstructing a house keeps rising on account of inflation,” says Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors. This product is also evolving. Every few years, check whether your current policy is at par with the latest offerings in the market. If that’s not the case, consider switching.
The cost of home insurance is 70-80 paise per Rs 1,000 of sum assured for the structure. If you haven’t bought home insurance yet, do so now to protect your home against natural and man-made calamities.
