Buying a home is a big affair since you invest a lot of money in buying it. Moreover, additional amounts are spent on decorating, furnishing and buying appliances. As such, in case any damages occur you stand to lose huge amounts of money. If your house is damaged due to a flood or earthquake you would incur substantial financial losses which might prove unaffordable. That is why you need a home insurance policy. Do you know what the policy is all about?
What is home insurance?
A home insurance policy, also called property insurance, is a policy which covers the damages suffered by your home, its contents or both. If there is any damage which is natural or man-made in nature, the policy would pay you for the loss that you incur.
- Features of a home insurance policy
A home insurance plan has the following features –
- It comes in different variants to suit the different coverage requirements of homeowners
- The premiums are very low and affordable
- The policy is usually issued for one year after which you can renew the plan
- Coverage amount depends on the asset insured and its value
- Types of home insurance plans
Home insurance in India comes in the following variants –
- Structure insurance
This policy covers the structure of your house, i.e. the roofs, walls and floors against damages suffered due to natural or man-made calamities. The policy can also be called a Standard Fire and Special Perils policy as it covers the structure against fire and other natural or man-made calamities
- Contents insurance
This policy covers only the contents of the house against damages of loss. Contents of the home include home appliances, jewellery, furniture and fixtures and other contents of the house. This policy is suitable for tenants who face a threat of damage to their belongings if the house is damaged.
- Comprehensive insurance
This policy covers both structure and contents insurance. It covers the structure of the house as well as its contents against damages or loss due to natural or man-made conditions.
- Public liability insurance
This policy covers any type of injury suffered by individuals when they are on your property or if your property causes damage to another individual’s property. In such cases, the aggrieved third party might raise a financial liability on you. This liability is covered under the policy.
- Tenant’s insurance
This insurance policy is designed for tenants who are living in rented houses. The policy is like a contents insurance which covers the belongings of the tenants in the rented house.
- Structure insurance
- What is covered under home insurance?
A home insurance policy covers the damages suffered due to the following instances –
- Riots, strikes or any other malicious acts
- Earthquakes, lightning, floods, cyclones, storms, etc.
- Aircraft damage
- Missile testing operations
- Terrorist acts
- Burglary and theft of the contents of the home
- Explosion or implosion
- Landslides, road slides or subsidence
- Bursting of water tanks or overflowing of pipes
- Leaking from automatic sprinkler systems
- Bush fire
- Additional coverage benefits under home insurance
Besides the above-mentioned coverage benefits, add-ons are also available under property insurance plans. These add-ons increase the scope of coverage of the policy and are available at an additional premium.
The most popular add-ons available with most home insurance plans include the following:
- Loss of rent
If, after damage, the house property is unoccupied, the landlord faces the loss of rent for the period the home is under repairs. This add-on covers the loss of rent.
- Rent for an alternate accommodation
Under this add-on the rent paid for alternate accommodation is covered when your home is damaged and you live elsewhere
- Replacement of lock and key
The add-on covers the cost of replacing the lock and key of your home.
- Escalation cover
Under this add-on, the increase in the value of the home due to inflation is covered.
- Terrorism cover
If the plan does not cover terrorism-related damages you can choose this add-on to include such damages.
- Loss of rent
- What is not covered under home insurance?
Home insurance plans do not cover the following types of damages or losses
- Non-disclosure of important information in the proposal form
- Pre-existing defects or damages
- Damages due to war, nuclear contamination, mutiny, etc.
- Losses due to pollution and contamination
- Loss of jewellery, cash, precious stones, etc. unless the same is specifically covered under the plan
- Deliberate damage to the property or contents
- Consequential losses
- Misconduct and wilful negligence
- Cost of land
- Depreciation and normal wear and tear
- Losses suffered when the property is not occupied for more than a specified period
- Properties under construction are not covered under home insurance plans
- Benefits of home insurance
Home insurance proves very beneficial due to the following reasons –
- The policy gives you financial security if your house and/or its contents are damaged
- The compensation paid by the home insurance policy allows you to rebuild your damaged home or replace the lost contents without feeling a pocket pinch
- Since the premiums are low, you can insure your house under an optimal home insurance policy without worrying about the financial outgo
How to determine the sum insured for home insurance plans
The sum insured of a home insurance policy is calculated on different bases. These bases are as follows:
- Agreed Value Basis
This basis is used to calculate the sum insured of a flat or an apartment. The sum insured is calculated by multiplying the total area of the property (in square feet) with the value per square feet. The area of the property would be the area as mentioned in the Registered Sale Deed Agreement. The value per square feet would be the value which is mentioned in the Ready Reckoner for Property Tax and Stamp Duty and which is issued by the Revenue Department of the State Government. The value would be taken for the date on which the proposal for insurance is made. Moreover, if the value is mentioned in the valuation report of a Government Approved Valuer, the same could be considered in the calculation of the sum insured if the insurance company agrees.
- Reinstatement Value Basis
Reinstatement Value Basis is used in the calculation of sum insured for insuring a building. The value is considered to be the cost of reconstructing the building to the original state in case of damage. The cost of land would be excluded in the calculation. The cost of reconstruction would be calculated by multiplying the area of the building in square feet with the current cost of construction in the locality where the building is situated.
- Indemnity Value Basis
This basis can also be used to determine the sum insured for insuring a building. The calculation is the same as in the reinstatement value basis. However, depreciation of the building, based on its age, would be deducted from the sum insured when it is calculated.
- New for Old Basis
This basis is used of insuring contents of the home and to determine their sum insured. Under this basis, the sum insured would be the cost of replacing the damaged contents of the home with new contents of the same value.
- Indemnity Basis for contents
Under this basis, the replacement cost of contents is adjusted by the depreciation of the contents due to their age. So, the replacement cost of the damaged contents would be reduced to factor in depreciation.
Popular home insurance plans available in India
Here are some insurance companies in India which offer home insurance coverage –
Name of the company
Types of plans offered
Bajaj Allianz Home Insurance Plan
ICICI Prudential Home Insurance Plan
HDFC Ergo Home Insurance Plan
Reliance General Home Insurance Plan
Oriental Insurance Home Insurance Plan
Royal Sundaram Home Insurance Plan
IFFCO Tokio Home Insurance Plan
Tips to choose the best home insurance policy
If you want the best home insurance policy for your home, here are some tips to follow –
- Choose the type of policy that you need
There are different types of home insurance plans and buy the best policy you should first know what type of coverage you would need. If you own your home, a comprehensive policy is the best but if you are a tenant, opt for contents insurance
- Compare before buying
As you can see, a lot of general insurance companies offer home insurance plans. So, before buying, compare. Compare the available plans on their coverage features and premium rates and then choose the best policy
- Opt for required add-ons
Though home insurance plans provide a comprehensive scope of coverage, the coverage can be enhanced with the help of add-ons. The add-ons have been stated earlier and you should find out the add-ons offered by different companies. Once you know the available add-ons, choose the required ones to make your plan all inclusive. For instance, you can opt for loss of rent add-on if you are a landlord and you would lose rent in case of damage to the house. Alternatively, if you are insuring your own home, you can choose the add-on which covers rent for alternate accommodation. So, assess your requirements and choose add-ons for a wider coverage.
- Compare the claim settlement ratio of the company
Though there are different insurers, you should compare the companies on their claim settlement ratios too. The ratio helps you determine the probability of claim settlements. The higher the ratio the higher would be the chances that your claims would be settled. So, choose a company which has a high claim settlement ratio
- Look for premium discounts
Insurers also offer premium discounts which help in bringing down your home insurance premiums. Look for the policy which offers the maximum discounts so that you can lower your premiums as much as possible.
How to make a claim under home insurance?
To make a claim under your home insurance policy, you should take the following steps –
- Inform the insurance company immediately after the claim occurs. You should inform the company within 7-15 days of the loss to get the claim registered
- A police FIR might be required in some cases. So, file an FIR and keep it handy
- The insurance company would arrange for a survey of the loss
- Once the survey is done, the claim amount would be estimated
- You should, then, submit your documents to the insurance company
- The company would verify your documents and settle your home insurance claims
Documents required for a claim
The following documents would be required to make a successful home insurance claim –
- Claim form which should be filled in and signed
- Copy of the police FIR
- Investigation report issued by the police after they have investigated the damage
- Fire brigade’s report in case of fire-related claims
- Original invoice of contents for replacement
- Court summons
- Estimates of repair costs
- Any other document as requested by the insurance company
Whether you own a house or you live as a tenant, a home insurance policy can provide you with financial security against losses that you suffer. Having a home insurance plan ensures that you don’t suffer a financial loss if any uncertain event damages your home and/or its contents. It, therefore, saves you lakhs of rupees at very low premiums. So, having a home insurance policy is recommended for your financial protection.
Frequently Asked Questions:
- Do home insurance plans pay the full amount of claim?
No, there is a deductible under most home insurance plans. The policies, therefore, pay claims which exceed the deductible limit. The amount of the deductible is to be borne by you.
- What is the coverage duration of home insurance plans?
Usually, home insurance plans are offered for a period of one year. However, insurance companies now offer coverage tenures ranging from 1 day to up to 5 years.
- What types of premium discounts are available under the plan?
Home insurance plans usually allow premium discounts for buying a comprehensive policy and for opting for long term coverage duration.
- What is underinsurance?
If you cover your home and/or its contents for a value which is lower than their actual value, it is called underinsurance. In the case of underinsurance, claims would be settled on the average clause basis.
- Can any rented property be insured?
Yes, you can insure a residential property which you have let out for residential purposes.