A home insurance policy covers damage from earthquakes, fires, explosions, floods, landslides, cyclones, storms, aircraft damage, and acts of terrorism.
Recent earthquakes in the Delhi-National Capital Region (February 17) and in West Bengal (February 25) underscore the importance of buying home insurance. A home is often an individual's most significant asset.
"Unforeseen events like earthquakes, fires, and floods can cause devastating damage, possibly wiping out your financial security," says Dilip Baba, head-commercial & speciality underwriting, Go Digit General Insurance.
Without insurance, homeowners have to bear the full financial burden of repairs and reconstruction.
What this policy covers
A home insurance policy covers damage from earthquakes, fires, explosions, floods, landslides, cyclones, storms, aircraft damage, and acts of terrorism.
It protects both the structure of the house and its contents (appliances, furniture, fixtures, etc).
After a disaster, homeowners may need temporary accommodation.
"Home insurance can cover relocation expenses after disasters if the policy includes a 'living expenses' add-on. It covers the costs of boarding, lodging, storage, and moving," says Baba.
Choosing right sum insured
Buy a sum insured that can meet the cost of rebuilding the house (excluding land value).
Most policies settle claims on a reinstatement value basis, which means that insurers reimburse the actual cost of repair or rebuilding.
If a policy has a sum insured of Rs 1 crore, but repairs cost Rs 60 lakh, the claim payout will be the latter amount.
"The amount paid is calculated using the carpet area in square feet multiplied by the cost per square foot of reconstruction in that region," says Baba.
Parthanil Ghosh, Director & Chief Business Officer, HDFC Ergo General Insurance, suggests periodically increasing the sum insured to match rising construction costs.
For contents, the sum insured is usually decided based on the declared value of items.
"In Griha Raksha, the standard home insurance policy, 10 per cent of the building's sum insured is allocated for contents. Jewellery up to Rs 5 lakh is covered without a specific declaration. Higher values require a declaration," says Baba.
Selecting right policy
According to Ghosh, buyers should identify the possible natural calamities in their area and then buy a policy that covers them all.
"Supplement the main policy with add-ons or riders. Also, look at the claim settlement ratios of insurers," says Ashwini Dubey, head of home insurance, Policybazaar.
Home insurance falls under the broader category of fire insurance. Claim settlement ratios for fire insurance, available on the Insurance Regulatory and Development Authority of India (IRDAI) web site, should be a consideration while selecting an insurer.
Baba informs that premiums vary based on construction materials used, age of the building, coverage limits, deductibles, safety features (smoke detectors, security systems), and the overall cost of reinstating the house. Dubey suggests comparing the premiums of different insurers.
Exclusions and waiting periods
Buyers must be aware of what is not covered by this policy. “Damages caused by seepage, poor construction quality, malicious acts of the customer, and war are not covered. Theft and burglary require an additional cover," says Dubey.
Jewellery kept in bank lockers is also usually not covered by a home insurance policy (you need to buy a bank locker protector policy).
Mistakes to avoid
Ghosh laments that very few people in India opt for home insurance to stay protected against natural and man-made perils.
Many homeowners also underestimate the coverage required.
"The policy must cover the full cost of rebuilding the house and replacing its contents," says Dubey.
He also underlines the importance of purchasing add-on covers for jewellery kept in the house and for burglary.
Feature Presentation: Rajesh Alva/Rediff.com
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