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Insurance for Dream Home

Your home is a costly and prized possession. A once in a lifetime purchase. Have you given much thought as to how much it would cost to replace your dream home in case of a natural calamity?
This article explains what is home insurance and why it is necessary for you to have a home insurance policy.

What is home insurance?

If your home catches fire and is destroyed it might not be possible to replace. Have you given much thought to this?

Take a basic fire and allied perils insurance policy

This policy replaces the structure of your home if destroyed by:

  • Fire
  • Flood
  • Storm and Cyclone
  • Lightening
  • Hit by an aircraft
  • Damaged in an explosion
  • Deliberately set on fire (arson and malicious intent).

You will have to pay an additional premium to cover damage due to an earthquake, landslide or a terrorist attack.

Householder’s package policy

A much better home insurance policy for you is a householder’s package policy. You have to pay a higher premium than a fire and allied perils policy. You are covered for damages suffered to the structure of your home by fire and allied perils.

You are also provided a cover for the contents of your home (Furniture ,electronic items, jewelry, art) destroyed by a fire and allied perils , theft or burglary and mechanical and electrical breakdowns.

Compensation to a third party affected by the damage your house causes (part of your neighbor’s wall is destroyed when your house collapses) or compensation for the injury/death of your domestic help is also provided by a householder’s package policy.

Householder’s package policy

What is not covered by your home insurance policy?

  • Damage due to natural wear and tear of the contents and structure of your home.
  • If you rent a house (you’re a tenant) then you can take only content insurance to insure your belongings.

How does home insurance work?

A home insurance policy replaces the structure of your home (walls, floor, ceiling and so on) damaged in a calamity. The market value of your house is of no consequence.

If your home costs INR 50 Lakhs (Market value) and the cost of the structure is INR 20 Lakhs you are insured only for INR 20 Lakhs. You can avail home insurance on the market value basis (The value of the structure of your house is calculated after deducting depreciation of around 2% per year).

If the structure of your home costs INR 10 Lakhs, after 5 years it is worth only 9 Lakhs. 10 Lakhs - (2% of 10 Lakhs * 5 years) = 9 Lakhs

Market value basis

Reinstatement basis

You can take a home insurance policy on reinstatement basis where the amount you spend on reconstructing your damaged home is given to you after construction. You will have to pay a higher premium than the home insurance market value basis.

Take a home insurance policy under the reinstatement basis in spite of the higher premiums, as you are given the whole amount you spend on reconstruction/replacement of the structure of your home.

How much does a home insurance policy cost?

  • You take a comprehensive householder’s package policy and pay a premium for a year.
  • You get protection for the structure as well as contents of your house.
  • You can take additional cover under this policy for damage to electrical and electronic equipment, and terrorism for a higher premium.
  • There is a sublimit on the value of jewelry insured. If you take cover of INR 5 lakhs you can claim loss only up to INR 50000. (Sublimits of around 10%).

Table showing the premium you pay and the cover/home insurance you get

HOUSEHOLDERS PACKAGE POLICY

Premium Payable per year Sum assured (Structure + Contents) Burglary/Theft (Up to INR 5 Lakhs ) Jewellery Cover (Up to INR 5 Lakhs) Terrorism Cover Damage to electrical and electronic equipment (Up to INR 5 Lakhs)
INR 2000-3000 INR 15,00,000 No No No No
INR 3000-4000 INR 25,00,000 Yes Yes No No
INR 5000-INR 6000 INR 30,00,000 Yes No Yes Yes

How to ensure a hassle free claim?

When you purchase the home insurance policy you make the declaration of your goods and valuables in good faith. (Insurer doesn’t verify the value/number of goods and valuables). When you make a claim the Insurer thoroughly checks/inspects goods and valuables for damage. You need to make the right declaration with sufficient proof.

You need to :

  • Maintain bills showing you are the owner of the goods/valuables and their costs.
  • Maintain your house/flat well
  • Do not allow/make any unauthorized construction to your home which can cause your claim to be rejected.

You have learnt from this article :

  • You don’t have to pay a high premium to insure your house.
  • You need to maintain your home well to ensure a hassle free claim on the structure.
  • You need to maintain/show proof of ownership and cost of valuables to support your claim. So avail home insurance for your dream home.
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