All about Home Insurance
1. What is Home Insurance?
Home insurance, also called home-owner / house-holder insurance is a means by which you can protect the structure of your home and also your precious belongings from perils such as fire, earthquakes, storms or floods (commonly referred to as STFI perils i.e. Storm, Tempest, Flood or Inundation perils), bursting or overflowing of pipes, and other calamities. It also can cover your valuable personal property such as electronics, jewellery, art and so on from burglary / theft and others.
2. Why do I need home insurance? These things sound unlikely to happen to me considering where I live.
Think of it this way. You've spent lakhs or crores on your home in terms of money to buy it and then maybe even do it up. You've put a lot of your hard earned money into beautification of the home, buying white goods, maybe putting up art too. If something happens like a flood, a pipe bursting, a fire, an earthquake or any such calamity, within a few seconds or minutes, your wealth can be damaged or destroyed. This insurance will protect your wealth by reimbursing you for damages incurred through any such insured calamity.
3. What about terrorism? What are the riders or additional policies I might need to consider?
Yes it can cover damage through acts of terrorism, through an optional cover like a rider, with most insurance companies. Some companies cover art, electronics and white goods also through other insurance policies or riders, and not under overall home insurance. Depending on what you need and which insurance company you opt for, different secondary items will be covered.
4. What kind of situations does home-owner insurance not cover?
Things such as willful property destruction of either the structure of your home or the belongings in it, damage or destruction caused by war or invasion, damage caused by radioactive contamination from nuclear fuel exposure, some companies don't cover art or bullion, destruction or damage from regular wear and tear in the home, or impact damage caused by the insured person.
5. How is the sum insured going to be calculated?
The sum insured is calculated separately for the home i.e. the structure of the home, and for its contents. Sum insured for your home will be calculated on the basis of something called Reconstruction Value, while the contents of your home i.e. the durables will be covered on the basis of their market value, after taking into account depreciation. You will also apply for a certain amount of insurance, which will take into consideration the Reconstruction Value.
6. What is Reconstruction Value?
To put it simply, it is the value of the home i.e. how much it would cost if it were to be reconstructed in case of any damage / destruction. It is the value of the built up area multiplied by the construction rate per square foot. This will likely be lower than what you actually paid to buy the home. It is also called Replacement / Reinstatement Value. It includes the value of the plinth and foundation, but not the value of buying the land. This is as per Standard Procedure.
7. If my home gets damaged and I place a claim, how will it be assessed and paid out?
Once you file your claim, the insurance company will appoint a Surveyor. The Surveyor will come to your home to assess the damage, and based on his assessment, the insurance company will dispatch a cheque to you. You can then carry out the repairs with this pay-out from the insurance company.
8. What if I need to appoint an architect to reconstruct my home, is this covered under the Policy?
Most companies do cover architect fees but ofcourse this will be subject to a limit. For example, some companies limit this amount to 3% of the claimed amount, which is quite low if you hire an expensive architect. Hence you can consider that part of the fees will be paid by you. Keep this point in mind when hiring an architect to redo your home.
9. If I work out of my home i.e. I use it for business or profession, can I insure it?
No you can't insure a home that is used for anything other than residential purposes under a home-owner's policy.
10. What are things I should keep in mind before buying a policy?
Different policies have different inclusions and exclusions. Some of the exclusions are quite tricky.
For example, a door without a frame, such as a glass door with hinges, cannot be insured.
If an appliance is more than 7 years old, it will not be covered.
If a tree falls on your building and your home or house compound wall is damaged, this is not covered.
If you insure your home and part of the corridor or common building areas also get damaged say in a fire, they will not be covered under your home-owner's policy, it applies only to the specified areas of your house.
You also need to know things like a First Loss situation, whether your policy covers modular kitchens, what the policy's stand is on Public Liability, Legal Liability, Alternate Accommodation, whether your policy covers items such as your laptop or digital camera, the policy on jewellery cover if you travel for a wedding, and so on.
All of these details are in your Policy Wordings, and they differ from company to company.
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As with any insurance taken for protection purposes, home insurance is an excellent thing to do and you must do it. Just the way you insure your health and the health of your family using Mediclaim, and you insure your life with Term Insurance (check out our Human Life Value calculator to see how much term insurance you really require), and your car with vehicle insurance, you should insure your home. After all, it is your most valuable asset. Before taking any insurance policy however, it is incredibly important to go through the policy yourself, don't blindly listen to what your agent or broker tells you. You may find that one policy covers more things for the same premium as another which covers fewer things. Go through the documents yourself very carefully before taking any insurance policy. Also remember, insurance is just one part of your overall financial situation. An expert financial planner can help you take control of your comprehensive financial life.