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Have A Roof Over Your Head Even After Catastrophic Events

Monday, February 12, 2018
By Rakesh Jain

Rakesh Jain, ED & CEO, Reliance General Insurance

Home Insurance
To own a home is a dream in everyone’s life. A person invests a lifetime of earnings for this but a single catastrophic event like flood or earthquake can destroy a home that took years to build. This results into a financial loss for an individual and so it follows that the protection of this asset is very important.

India is a growing market but it also happens to be third worst affected country by natural disasters since 1995. Earthquakes have struck us in the past and resulted in crores worth property being destroyed. Floods and cyclones leave behind a trail of destruction in large numbers. In addition, accidental fires also cause damage to homes.

Combined with low home insurance penetration and lack of awareness about this crucial product, people are unknowingly putting their houses in grave danger.

What is covered:
Home can be insured under “Standard Fire and Special Perils Policy” which provides protection to your home building and contents against fire, natural calamities like earthquake, flood, cyclone, storm, and lightening and also due to riots. Terrorism cover can also be opted at an additional premium. Someone in a rented house can also buy home insurance for its contents excluding building. Long term policy from 3 to 10 years can also be available to cover the home building only.  Discount in premium is also available for Long Term policy.  

In addition to above, one also has an option to take Householder’s Package Policy covering various other contingencies in addition to fire like burglary and housebreaking of contents, loss to jewellery and valuables, breakdown of electrical and mechanical appliances, Personal Accident Cover for family members and legal liability to domestic servants and third parties. The package cover offers flexibility in choosing the sections as per need of an individual.

How to Choose Sum Insured:
There are two ways to arrive the sum insured: one is on the market value basis and the other on the reinstatement basis. Market value should not be confused with resale value. “Market value” is the value arrived after deducting depreciation cost from the current cost of construction. “Reinstatement Value” on the other hand is the value of reconstructing the house. In case of a loss under policy on “Reinstatement Value” basis, there is no application of deduction due to depreciation. To arrive at the Sum Insured on “Reinstatement Value” basis, one has to multiply the ‘built-up area’ of house with the current construction cost per square foot. One should ensure to also include the value of compound wall in sum insured. The value of land and locality should not be included in the sum insured.  

What is not covered?
Some standard exclusions are loss/damage caused by war, nuclear radiations, wear and tear. In addition, if the home is unoccupied for more than 30 days, the cover under policy stops unless prior notice is given to the insurer.

Premium is payable at inception for a one year standard fire policy and for a long term policy. The amount is very nominal considering the total value of property covered. For example, for a policy covering building valued at 10 lakhs for one year shall be about INR 350. A long term policy of 10 years can avail a long term discount of 50%.  The GST applicable at present on insurance premium is an additional 18%.

For a Package policy for a normal apartment, the premium for building and contents including fire, burglary, jewellery, breakdown of appliances and PA for family members would be about Rs. 3000/- plus the GST. In case of a loss under the policy, immediate intimation should be given to the insurance company who appoint a surveyor to assess the loss. Intimation should be given either to the policy issuing office or to the call centre of the insurance company.

Purchasing the policy is very easy with most insurers having an online facility highlighting the salient features of coverage and the premium chargeable. An online quote can also be obtained by mentioning the value of property to be covered.

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