Importance of Having a Home Insurance Policy in India

Like most insurance products go, the value of a home insurance policy can only truly be appreciated when a misfortune strikes. Only, it might be too late by then. This is why, it’s always better to be prepared to safeguard yourself against any losses faced due to theft, fires or natural disasters.

Here are some of the major reasons why purchasing a home insurance policy a must in India:

Protection for the Structure of Your House:

A home insurance policy provides financial protection in case your house is damaged due to natural or man-made calamities like floods, earthquakes, fires or vandalism. The floods in Uttarakhand and Chennai, for instance, caused mass destruction, leaving those who did not have home insurance having to bear huge losses.

A Basic Policy Covers the Cost of the Structure of the House.

This Cover is provided in 3 Ways:

1. Reinstatement Value:
   This is when the home insurance policyholder is given a value that equals the construction cost of the house, where the value of the land on which the house is based, is excluded.
2. Agreed Value:
   This includes the land value and the cost of construction of the house.
3. Indemnity Value:
   This is the market value of the house and it covers the construction cost and the depreciated value as per the age of the building.

Read More: WHY YOU SHOULD BUY A HOME INSURANCE POLICY?

The Difference between these 3 Covers:

Here is an example to help you understand the difference between the 3 easily:

Let’s assume an individual wants home insurance for his/her 15 year-old house which has an area of 1,200 square feet. Suppose the cost of the house is Rs.5,000 per square foot as per the location, or Rs.60 lakhs, and construction cost is Rs.2500 per square feet, or Rs.30 lakhs.

If the individual buys a home insurance policy as per the reinstatement value, the sum insured will be the area of the house multiplied by the construction cost per square feet, i.e. Rs.30 lakhs (1,200 X 2,500). 

But if the individual purchases a home insurance policy on the basis of the agreed value, then the sum insured will be the area of the house multiplied by the cost per square foot, i.e. Rs.60 lakhs.

Lastly, if the house was insured by a home insurance policy on the basis of the indemnity value, the sum insured would be the total cost of the construction minus the depreciation. Assuming that the depreciation is 30%, the sum insured would be Rs.21 lakhs (Rs.30 lakhs minus Rs.9 lakhs, which is construction cost minus depreciation at 30%).  

Though the reinstatement value or market value are the most common ways to determine the cover, a few insurance companies also provide cover on the basis of the agreed value.

Those living in a rented house should note that they cannot avail the cover for structure as they do not own the house; they would only be able to insure their belongings.

Content Cover for Personal Belongings:

Given the increasing rate of crime in the country, acquiring a home insurance policy for covering personal valuables and belongings is a must. Advanced home insurance packages also safeguard the contents of your home like furniture, art work, jewellery or electronics. You can insure your contents by either buying a cover that accounts for depreciation, or on the basis of reinstatement.

Under valuation, the content cover has to be declared to the insurer through invoices and bills. In a reinstatement cover, you would get the cash for the insured items, without any allowance for depreciation or the wear and tear.

However, the reinstatement type of insurance is likely to cost more and would have several terms and conditions attached. Reliance General, for example, provides replacement for specific types of electronic items that are up to 10 years old (mobile phones, tablets and laptops are not included) where an old item is replaced with a new one of the same model on the basis of its current market price.

Additional Cover:

Home insurance policyholders can also avail additional cover and riders. The policyholder would have to declare the value of their assets and consider which riders they would like to include in their insurance policy. The premium would change depending on the number of add-on covers taken. So if you have already have a bank locker where you keep your jewellery, you needn’t opt for a jewellery rider.

Do note that there could be sub-limits on certain items. For instance, HDFC Ergo does not cover coins, currency, valuables, jewellery, etc. that are in excess of Rs.10,000 under their Long Term Fire Insurance Policy.

Some special home insurance policy covers also provide the policyholder additional coverage for living expenses, if they are temporarily unable to continue staying in their house due to the damages caused to it. This comes under the purview of rent cover, and is subject to certain conditions like duration, for one.

Under some home insurance packages, you can also make a claim for personal accident, for payment compensation for partial or permanent disability due to an accident.

Wrapping It Up!

Home insurance policy is an important precautionary measure that you should definitely invest in. Ensure that you are not under insured, by declaring the value of assets in an accurate manner so as to derive the right sum insured figure.

Understand the terms and conditions and ensure that you check the policy every three to five years as the cost of reconstructing a house is bound to appreciate, due to a constant increase in inflation.