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Looking to insure your house? All you need to know

Many people believe that home insurance does not cover acts of God. But the fact is that acts of God are covered under home insurance. Section 1 of a home insurance policy generally covers fire and other allied perils such as floods.

Misconceptions About Home Insurance

(Graphic: Ajay Thakuri)

Thousands of people were made homeless after the recent earthquakes in Nepal. The tremors were felt in India, too. The tremors come as a reminder to us on how important it is to have home insurance. Still, not many people in India buy home insurance due to a lack of awareness, says Sasikumar Adidamu, Chief Technical Officer (Non-motor), Bajaj Allianz General Insurance.

Three kinds of risks are covered under a home insurance policy. The basic policy protects the building against fire and allied perils such as earthquakes and floods. The second type of risk coverage protects the contents of your house from both natural and man-made calamities, including burglary. The third covers peripheral risks such as loss of baggage in transit. There are many misconceptions about home insurance. Here are the most common ones:

>> Home insurance does not cover the Act of God.

Many people believe that home insurance does not cover acts of God. But the fact is that acts of God are covered under home insurance. Section 1 of a home insurance policy generally covers fire and other allied perils such as floods. Generally, coverage is offered under nine to 10 sections, of which you need to take at least two to three sections. Section 1 is usually compulsory in all the policies. But you need to read the policy document carefully so that you know what exactly is covered. For example, a policy covers flood but it does not cover damages as a result of heavy rains. Water seepage through walls and roof does not fall under the definition of flood. According to insurers, flood and inundation are caused by overflowing of a water body due to accumulation of a large amount of rainwater in areas which are usually dry. So, understand the definition of perils before you buy a policy.

What to do? It is advisable to go for a comprehensive home insurance cover to avoid last-minute surprises. Considering that each policy differs in wording, check out with your agent the extent of coverage offered under the policy. Generally, the coverage under home insurance is offered section wise. For example, the first section is for fire and allied perils, the second is for house break, and the third is for loss of jewellery and valuables. Read the policy documents carefully to understand what all is covered.

>> Home insurance is costly.


It is not. Consider this: for sum insured of Rs 10 lakh (assuming you have a house with a built-up area of 1,000 sq.ft and construction cost is Rs 1,000 per sq.ft) and valuables worth Rs 5 lakh, including jewellery, the premium comes to around Rs 2,500. This is just 0.25 per cent of the sum insured. But the fine print is that home insurance generally pays you the cost of construction and not the cost of land. The cost of construction is arrived at by multiplying the carpet area of the house with the cost of construction in that city. A few policies cover the cost of land. One such is "My Home All Risk Policy" from Bajaj Allianz General.

What to do? Low premiums mean low commissions for agents. So your agent might not be keen to sell the policy. The best is to buy online.


>> Claim settlement is complicated.


Many fear that claim settlement is a lengthy process. It is not so. If you know how to file a claim, you can speed up the claim process. For example, in case of any eventuality, the insured needs to intimate the claim to the local office or to the company's call centre. The insurance company deploys a surveyor and the claim is settled after the losses are assessed. The insurer asks for your know-your-customer (KYC) documents to identify the claimant but usually in case of large-scale eventualities insurers relax the settlement procedures. At times, insurers just ask for the date and the year when the policy was issued so that they can cross-check it in their database and settle the claim.

What if the insurer's office gets destroyed in a calamity? Sanjay Datta, Chief - Underwriting and Claims, ICICI Lombard General Insurance, says: "With the advancement of technology and development of insurance-related software, insurers possess policy-related documents in electronic form and claims are settled using such software. Even if damage occurs to an insurance office, it will not hamper the processing of claims."

What to do? The best solution is to be aware of the whole claim process in advance so that when the calamity happens you know what to do.

>> Home insurance with home loan is sufficient. Most home insurance policies bought at the time of taking on a home loan cover the building structure only, without any coverage for contents such as household articles and electrical appliances that can also get damaged during a natural calamity. Such policies mostly cover basic perils such as fire and flood. Only a comprehensive home insurance product covers both structure and contents. "Often, policies with a home loan represent only the loan amount and not the value of the property. This would adversely affect the insured as in the event of a claim, the amount under insurance would apply and the claim amount would be considerably reduced," says Datta.


What to do? The right way to buy home insurance is to have adequate sum insured and proper basis of coverage, including a cover for the home contents. Check with your agent whether the policy covers acts of God and perils such as earthquake.

>> You cannot buy home insurance without owning a house:


If you have given your house on rent, you can take insurance for the structure as well as for contents. Specific covers are also available in the market. As a tenant also, you can insure the contents of your home. If you move to another place, you can get the policy endorsed for change of address.

The perception that calamity befalls others and that your property would always be safe needs to change. The earthquake in Nepal should wake us up from our slumber.

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