For most of us, owning a home is an important milestone in our lives. We make meticulous financial plans, often making sacrifices as we try to live on a budget and save for that dream house. Then, one happy day, we finally step across the threshold into our own home and celebrate. As a new home owner, we remember to do all our homework about finding the right loan. But we often forget to insure ourselves against unexpected events like fires, theft, vandalism and many other unforeseen issues that can destroy a dream and our financial stability in one swoop. Therefore, it is critical for every new homeowner to protect themselves from these risks by getting a home insurance.
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What is Home Insurance?
Home insurance is one of the forms of property insurance which protects homeowners from any damages to the home or property or estate. Any individual who is a resident of India and is the owner or occupant of a property, can purchase a home insurance policy.
In the event of a catastrophe, home insurance provides homeowners compensation for various combinations of assets. These can be protection for the home structure, personal belongings, allied liabilities and extra expenses due to temporary unavailability to live in the concerned home in the event of fire or other disasters. Homeowners and tenants can select from a range of coverage options depending on their requirements.
Types of Home Insurance
Home insurance can be broadly categorised into the following types depending on the extent of coverage.
1. Standard Fire and Special Perils Policy: This policy is offered by most insurance companies. It can be availed by both homeowners (for owned house) as well as by tenants (for their rented homes). The policy covers the cost of reinstatement of the building, excluding the value of the land. The following are the losses and damages generally covered:
a. Natural calamities such as lightning, earthquakes, fires, storms, floods.
b. Man-made events such as fire due to explosion.
c. Man-made events due to anti-social activities such as strikes, riots, damage caused due to malicious intent.
d. Bursting or overflowing of water tanks, pipes and other building apparatus.
e. Subsidence due to rock slides and landslides.
f. Man-made events such as missile testing activities.
2. Home Structure/Building: This policy covers the structure of the house and permanent fixture within the house (such as the ceiling, fittings etc.).
3. Other Structures: This policy includes coverage for any structural damages to allied structures such as garage, premises, fencing etc.
4. Burglary or Theft Cover: Under this policy, the home and its content both are covered against burglary or theft. This may or may not include silver articles, antiques, jewelry; sometimes these valuables need to be taken as add-on coverage. If included, insurers may require you to have kept them in a locked safe, to be able to claim for them.
5. Additional Living Expense: In the event of damage to the home, the owner may be required to evacuate the home and seek shelter elsewhere, for example in a hotel. This policy takes this aspect into consideration, covering for the necessary extra living expenses when the house cannot be occupied due to damages.
6. Personal Liability (Comprehensive): Others may put forth any claims in the event of damage to the house. This policy covers such additional claims as well.
7. Public Liability: In the event of any third parties facing damage due to damage to the home when they were occupying the home, or because they had certain assets placed in the home, this policy covers that too.
8. Tenant Insurance: As a tenant, it is possible to choose an option of insuring just the home content, without insuring the house itself.
9. Medical Expense: In the course of a catastrophe, the homeowner and / or family may incur some health damage too. Certain home insurance policies weave together a medical insurance element, and cover the medical treatment expenses incurred such as accident injuries.
Selecting from the above-mentioned types of coverage should be done by (a) evaluating your risk level and appetite, and (b) your financial budget. If you feel like it is worth paying the high premiums based on your own understanding of the risks to your property, (for example if you live in a flood-prone area) you can consider tapping into alternative money sources like online credit from MoneyTap.
How is The Home Insurance Sum Assured Calculated?
Insurers follow either of the following two ways to calculate the home insurance value.
1. Based on Market Value: This considers the value of the house after factoring in depreciation.
2. Based on Reinstatement Value: This considers the value of reconstructing the house. Depreciation is not deducted in this case.
A number of factors go into calculating the premium amount:
1. Location of The Home: High risk locations that are prone to natural calamities will demand a higher premium.
2. House Features: The age of the house, type of structure, roof, wiring quality, material of construction etc. affects the premium.
3. Personal Profile of Home Owners: Credit history, claim history of the homeowner and lifestyle habits affect the premium.
4. Use of Protective Devices: The use of protective devices like burglar alarms, smoke detectors, fire alarms, fire extinguishers etc. may lower the insurance premium since these reduce the risk.
Considerations When Buying a Home Insurance
Your home is a complex asset since damage to your home may require compensation for beyond what is obvious to the eye. It is, therefore, important to carefully assess what your home insurance covers and what it does not. The most important aspect here is to assess how much cover you actually require and accordingly determine the sum assured and nature of insurance. Check for the following aspects:
1. Does home insurance cover the belongings within the home as well?
2. Does home insurance provide self-protection coverage i.e. does it shield you from any additional property claims that may come up in the event of a disaster?
3. Does home insurance offer bank requirements coverage i.e. does it cover the house to the amount of the home loan you have taken?
4. Does home insurance cover only the cost of the building or home, or also the cost of land that it is built on as well?
5. The market value of your home cost factors in depreciation as per market rates. You should therefore ideally opt for reinstatement cost-coverage instead of merely building and contents coverage.
6. Poor or unauthorised construction may be used by the insurer as a way to not pay for damages. Ensure you avoid any such construction.
7. Choose the sum insured carefully depending on whether you have an independent home or an apartment in a building. Because if you own only an apartment, you won’t be able to reinstate the house in the event of the whole building being damaged. In such case, it is recommended for housing societies to insure the entire building, as a policy.
8. As is with any insurance, purposeful destruction of property, damages due to wear and tear, damage due to war are generally not covered. Check for inclusions and exclusions carefully.
9. Check whether the policy covers a home that is lying unoccupied for a while, there are specific terms around this.
Home Insurance Advantages And Disadvantages
|Provides a high degree of stress relief by protecting one of your most important assets i.e. your home. This is especially important for owners of a single home, as they may not have anywhere to go in case their home is damaged.||Some of the additional coverages like earthquakes, floods etc. may come at an additional premium cost, increasing the overall cost of the policy. Be careful while selecting your coverage mix.|
|Comparatively lower premium rates than other insurance policies.||It is an additional cost for your household, and you will need to budget for it separately.|
Home Insurance Providers in India
Almost all the major insurance companies in India, both government and private, offer amongst the best home insurance deals. Some of the big names are HDFC Ergo, ICICI Lombard, TATA AIG, Bajaj Allianz etc.
Make sure you check for the following when selecting the insurer:
1. Check for the claim settlement ratio i.e. the turnaround time for settling claims. It is very important that the owner / insured get the claim when he or she truly needs it, else it does not serve the purpose of alleviating life stress.
2. Check for good service reputation: Highly customer centric staff which is willing to help at any time is a must criteria for selecting the insurer. After all, mishaps may come knocking at any time, so be sure you select a company with a great reputation for handling claim cases.
Home Insurance Process
Whichever home insurance provider you opt for the procedure consists of the following broad steps:
1. Application: You will need to submit the necessary documentation including personal details, personal credit history, claims history on all the insurances you hold, home loan documentation if any etc.
2. Assessment: Most insurance companies carry out an inspection of the property. This is done to verify that the property exists at the said location, and is in the condition as stated by the owner.
3. Start of Coverage: After all the verification, you will be asked for a coverage start date, and your coverage will be effective from this date. When changing homes and therein insurance policies, make sure to avoid any gaps in coverage period
A home insurance can provide a great degree of stress relief to homeowners who often pour their life’s earnings and huge efforts in putting up their place of stay. It will help owners live without the constant worry of becoming homeless, in case of an event that is beyond anyone’s control.