Home is where heart is. So insurance your home which is close to your heart. Home Insurance covers unforeseen events both natural disasters and man-made
What is home insurance?
There are two components in home insurance policies. They are-
Building Insurance – Building Insurance covers only the structure of the house and not the contents of the house. The policy covers the reconstruction cost and it is calculated only for the built-up area, as per the construction rates fixed by insurance company. The policy provides protection against natural disasters like flood, earthquake, storm, cyclone etc. and also for man-made disaster like strikes, riots etc.
Contents insurance –
Contents insurance comes with an insurance cover that protects the valuable belongings of an individual in a house. This may include precious jewelry, electrical appliances, furniture etc. This is particularly beneficial for those living in rented accommodation. But an important thing that one should keep in mind while opting for such type of cover is that the policy does not include cash, stocks, bonds and antique items in their insurance cover. The insurance cover can be taken for protection against earthquake, burglary, damage due to fire, short- circuiting etc.
There are two types of home insurance policies.
Basic fire insurance policy
Fire insurance policy covers your house against fire and other allied perils including lightening, storm, flood and riot. However, some insurers may ask you to pay an extra premium in order to cover disasters such as earthquake and landslides. You can also insure your house and contents against terrorism by buying an add-on cover.
Comprehensive policy or householder's package policy (HPP)
HPP on the other hand packs in more covers. The basic cover bifurcates into two: one covers the structure of the building against fire and other allied perils and the second covers the contents of the house. Tenants can just opt for cover for just the contents. A HPP also offers optional covers that insure contents of your house against burglary, damage, mechanical or electrical breakdown.
How do you choose the sum insured?
The value of your house has three components: land, building and locality costs. Insurance will cover only the building cost. For example, if the market value of your house is Rs 1 crore, of which the building cost is Rs 30 lakh, your policy will insure only Rs 30 lakh. A civil contractor will tell you the cost of construction, which will vary depending upon the city.
But, what happens when the entire house is brought down. If the land is yours, you should be able to rebuild the house. But if you have an apartment, you alone can't reinstate the house. Therefore it's recommended for housing societies to buy insurance for entire premises.
There are two ways of buying home insurance: one is on the market value basis or depreciated cost basis and the other on the reinstatement basis. Don't confuse market value for resale value. When you re-sell your house, you get the value of land and the locality as well. In insurance, market value is akin to the value of your house after factoring in depreciation. Insurer will depreciate the market value by 2% per annum going up to 100% in 50 years. Reinstatement on the other hand is the value of reconstructing the house. The insurer in this case will not deduct depreciation. Go for reinstatement cover even in case of the contents of the house. But keep in mind that the insurer will settle the claim only after the house is reconstructed. Some insurers may make partial payments to help you reconstruct the house.
What happens if you are underinsured?
The value of your house has three You will also need to review your cover periodically to ensure you are not underinsured. If the policyholder underinsures himself, it’s assumed he has agreed to self-insure for the remaining cost. The insurance claim in this case will reduce proportionately.
What happens at the time of claim?
It's important to cover your house, but do not ignore the claims process. At the time of a claim the insurer will have the damaged goods inspected thoroughly. Therefore you will need to ensure that you have made the right declaration and you have sufficient proof. Insurer can refuse claim in case of subsidence building or poorly maintained building or unauthorized construction.