Home Insurance - basics and reasons

Kerala has been a victim of one of the worst floods in a century and the reports and destruction that it has caused is extremely overwhelming. It is estimated that there is a loss of around 19500 crores INR to property, livestock, infrastructure and business in Kerala. While many people are donating towards CMDRF (Kerala state government relief fund) and other active NGO’s, these donations will help them with their immediate needs and infrastructure of the state. What happens to the loss of the contents of the house and the  building structure? Insurance companies have said that the claim of only 500 crores would be received from kerala indicating how underinsured the localites were in Kerala. To give a perspective, a claim of 5000 crores was received during Chennai Floods 2015. I am not trying to criticize the efforts that are put into reviving the Kerala economy. When there are measures given then why dont people secure themselves from the dangers of any calamity and cover their losses?  Kerala floods has acted as an eye opener for everyone to ensure yourself and your belongings. I have mentioned below in detail about what is Home insurance and what are the things that you must keep in mind before taking one. What is Home Insurance? Home insurance plans allow you to protect your house and household items against fire and other perils, such as theft, burglary, accidental breakdowns, and so on. If you intend to buy householders' insurance, you should purchase a policy that provides cover for your house as well as all the contents in it. What is covered by Home Insurance?
  • Building Structure – is the civil structure of your house comprising of the walls and a roof. The insurer will bear the whole cost of replacing or reinstating the whole structure in case of a disaster.
  • Content/Belongings of the house – House hold appliances and electronics; Household contents – clothes, furniture, curtains, crockery, etc. Jewelry worn by you and your family members
You can get a home insurance cover against Natural and man-made calamities:
  • Natural Calamities include – earthquakes, lightning, flood, cyclones, landslides, tornadoes, fire, falling trees, inundation, missile testing operation, subsidence, landslides and rocks ides.
  • Man made - Burglary or theft and the act of terrorism.
Certain Exclusions from home insurance are:
  • Willful destruction of property
  • Damage and destruction due to war
  • Wear and tear
  • Pre-existing damage to the building
  • Manufacturing defects in electrical, mechanical and electronic items.
Types of property not covered under home insurance
  • Property under construction
  • Resident cum offices
  • Land
  • Shops
Types of Home/Property Insurance–
  • Standard Fire and Allied Perils Policy - This mainly covers perils the property is exposed to like fire, riots, flood, or storm.
  • Burglary and House Breaking Insurance Policy - This mainly covers burglary or theft.
How to fix Sum Insured for home/property or valuables you own? Your premium will be fixed based on the sum insured. Also, do remember that this is the maximum liability insurance company has on your property. Calculation of the required sum insured is very much important. Because sometimes you may opt for lower insurance and if in case of any causalities then you may suffer financial burden. So buying right valued insurance is very much important. There are two methods to arrive at a sum insured required.
  1. Market Value Method.
In this method of calculation, the sum insured is arrived at the current market value. So for assets or properties which are in the nature of depreciation, if causalities happen then the owner may not get the full value to replace it with a new one. For example, let us say you have a laptop, phone, other appliances (newly bought) which is currently costing you INR 3 lakhs. Based on this you bought the policy for a sum insured of INR 3 lakhs. But after 2 years if the property value depreciated to INR 2.7 lakhs and policy came to claim due to causality, then the insurance company will provide you only INR 2.7 lakhs but not INR 3 lakhs. Therefore, what will happen is sometime you feel short of amount to replace asset with a new one. Because insurance companies considered depreciated value and paid you the amount.
  1. Reinstatement value.
In this method, if policy arrives to claim, then the insurance company will replace with a new one, but subject to maximum ceiling of sum insured. Insurance companies will not deduct any depreciation on the asset. Do remember that such method of arriving at value will apply only to fixed assets like property but not to assets like stocks. Usually in India, insurance companies cover the built up area. Suppose you have 1,000 sq.ft. Built up area and current cost to build is Rs.800 then the valuation considered as Rs.8, 00,000. On the other hand, valuables like jewelries are usually assessed based on the current market value. So in case of loss they would pay you value of purchasing at current cost deducting the depreciation for the usage. Unique Features of a Home Insurance
  • Before proceeding to buy insurance, first understand the exclusions also. This makes clear about what is covered and what is not.
  • If your property is valued at higher insurance, then it does not mean that you will get the full sum insured claim amount.
  • You can cover household items like laptop, personal computer, Jewellery or any other valuables. However, it is strictly based on valuations.
  • If you have multiple insurance on a single asset, then in case of claim the damage will be shared by all insurance companies based on the proportion of the sum insured.
  • You can cover self-occupied and rent house also.
  • If you adopted some safety instruments to your property like smoke and burglar alarms, then you will get a discount in premium.
  • Few Insurance companies offer third party liability, hospital confinement allowance, or accident insurance too.
  • You can either choose to cover only building or building with content.
  • Your mobile phone and laptop can also be covered under home insurance
  • The insurance that your society provides may offer you a limited cover and generally includes only structure, not its contents.
  • You should buy a home content insurance, if the structure’s insurance is taken care of by the society
  • When the insured house is sold, from the time the transfer of ownership is effective, the policy stands cancelled and the balance premium is refunded.
Claim process
  • First importance is to take steps to control the damage.
  • In case of fire, inform the fire brigade immediately.
  • It there is theft, then inform the police.
  • Inform the insurance company over phone or in writing.
  • Co-operate with the surveyor in understanding the value of lost items along with providing necessary proof.
Documents required for claiming:
  • Original invoice giving values of the items stolen
  • Replacement cost/repair cost
  • FIR
  • Final police report
  • Claim form
Home  Insurance is a very easy and cheap insurance product. By buying this insurance, you also get a hold of the cost of the household expenses. Insurance is a financial product you dont get it when you need it the most.
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