Natural calamities come without any warning. Torrential rains causing flash floods in Chennai is a reminder that we need to be prepared by insuring our house. According to a report by Swiss Re, there were 25 catastrophic events in India last year, up from 20 in 2014. The severe flash floods in Chennai in November were the largest disaster, causing estimated economic losses of $2.2 billion. Insured losses were estimated at around $755 million, making these floods the second-most expensive insurance event in India.
Similarly, many cities in Northern India are located close to the seismic gap in the Himalayan range. The report states that the likelihood of earthquakes in seismic gaps is very high, and the expected magnitude of such an earthquake in the Himalayas is Mw 8.0-8.5. According to the 2011 census data, around 90 per cent of Delhi's buildings fall in the non earthquake-resistant category.
Although a calamity is not in human control, but monetary help at the time of distress can certainly help you in recovering fast. One should insure their homes to save their near and dear ones from sudden shock. Despite the best security and fire protection measures, the risk of thefts and damages due to fire always stays.
Factors to keep in mind:
Valuation: Valuation for the structure is determined by the construction cost, which does not include the cost of land, considering the location where the building is situated. "The home insurance policy calculates reconstruction cost based on two parameters: built-up area of the house and the cost of construction in the same area for similar property," says Mukesh Kumar, executive director, HDFC ERGO General Insurance.
Home insurance policy also includes and safeguards household articles from perils such as fire, burglary; natural calamities such as earthquake, flood, storms; and breakdown of appliances. "Items older than eight years are typically not covered by insurers. The claim amount will be given after deducting the depreciation as per the age of the item," says Yashish Dahiya, co-founder and Chief Executive Officer, PolicyBazaar.com
The insurance coverage includes electrical items like refrigerators, air conditioners, washing machines, television, computer, furniture, fixtures and clothing, etc. The contents are calculated on the basis of market value of insured items; i.e. the cost of purchasing a new item of the same/similar model in the market.
The contents can be valued at the actual cost of purchase, less depreciation considering the age of the items.
Procedure of buying: Till a few years ago getting home insurance required minute details and invoice copies for each and every asset that was to be covered; but now policies are issued instantly with very minimal information about the assets that are being insured at the time of buying the policy. So, in case of content insurance, no documents are needed while buying the insurance policy but bills of the insured contents are to be produced at the time of claim for the contents to be valued at market price (i.e. replacement value less depreciation). Home insurance can be bought online just by filling details only if the structure has to be insured. You need to fill information such as type of ownership, policy tenure, type of plan, property details, coverage details, contact details etc. However, for valuables like jewellery, it is done only after physical inspection. One also needs to provide bills and invoices to the examiner for proper valuation of contents. "If valuables to be included - like jewellery worth more than 10 lakh or any piece of valuable art - the insurance will be done after physical evaluation of the house and content," says Dahiya.
One can pay the premium online with credit/debit card or internet banking. Total payable premium can be calculated by an individual as per premium rates mentioned on the proposal form. From an insurance perspective, the premium would be lower in case of better security measures.
Sum insured: Sum insured for a structure is calculated on the basis of current reconstruction cost of the house. The sum insured for a home insurance policy is quoted after considering the latest building rates and reinstatement value of the house. "A property is an appreciating asset and its value usually goes up with time," says Dahiya.
The insurance cover should be decided as per the latest value of the house. "The average reconstruction costs in India today range from `1,650 per sq. ft for a bare-minimum to `2,050 per sq. ft for better-quality construction. With a standard home insurance policy, a 2,000 sq. ft house can be insured for `33-40 lakh, the annual premium for which is in the range of `2,500-3,100 (only structure), (but) the cost may vary based on type of the construction and locality," says Kumar.
Claim process: Policy documents given at the time of buying the insurance policy are very important and are needed to make the claim process simple and fast. Through these documents, insurance companies confirm about the asset especially the household contents.
It is always good to store your policy digitally so that at the time of disaster it is not difficult to get hold of your copy. "At the time of claim, surveyors will ask for repair/ replacement invoices and confirm reinstatement of affected items. If the insured does not want to reinstate the affected items, surveyors will assess the loss on market value basis," says Kumar.
Home Insurance Offered with Home Loans vs Householders Insurance: Many think home insurance that comes with a home loan is enough. But you should know that the insurance offered along with home loans is generally only for the building; whereas in the householder's policy the contents are also covered. Normally, long-term policy is offered with home loans to protect the property during entire loan tenure. Tenure for policies, which are bought separately, is generally one year. Sometimes, banks demand home insurance before granting home loans to the customer.
"Home insurance ensures that when a property under loan is damaged or destroyed, the sum insured is given to the bank and the liability of the same is not borne by the customer," says Dahiya.