Home is where the heart is and all the money too! Did you know that in India, most people invest their life savings into a building or buying a home? So how can you protect such an important asset? The answer lies in home insurance. If you have just bought a home or are considering such a purchase, the following guide will introduce you to some basic insurance concepts.

What is home insurance?

Home insurance is a hedge against damage to your property. The type of insurance plan you opt for determines the extent of coverage. In India, there are two kinds of home insurance policies– a basic fire insurance policy and the Householder’s Package Policy (HPP), also known as a comprehensive policy.

  • Basic Fire Insurance policy – This is opted for by homeowners and renters alike. It covers loss and damages from:
  • Natural calamities such as fire, flood, storms, earthquakes, and landslides.
  • Man-made events such as riots, and strikes.
  • Unpredictable events such as damage by vehicles and home installations malfunction.
  • Householder’s Package Policy (HPP) – This is a more comprehensive policy and includes two parts: coverage of building structure against specific perils and coverage of contents inside the house against damage, fire or burglary. Tenants have the option to choose only the home contents cover

Some possible add-ons over and above the basic policy coverage are Personal Accident Coverage, and Burglary and Theft Coverage.

Determining the sum insured

Insurers offer two methods of calculating sum insured:

  • Reinstatement cover – This takes into account the cost of reconstructing the structure from scratch. This is the most preferable option, even if you have chosen only to insure the contents inside the house. However, most insurers will settle the claim only after the new construction is complete because it is difficult to determine the exact cost at the outset. Depending on the terms and conditions of your policy, you might receive instalments as predetermined stages of construction are completed
  • Depreciated cost/market value cover –The insurer will determine the value of the property on the day of damage after taking into account the depreciation incurred till that date. This is not the resale value of your house. Resale value is determined after taking into account not only the building cost, but also your area of residence, the land values, and connectivity etc. The standard depreciation rate applied is two per cent on the market value. For example: Let us assume your home has a market value of Rs. 100,000 constantly. Three years later, the entire structure is destroyed by fire. The insurer will pay you Rs. {1,00,000-(1,00,000*2%*3 years)} = Rs. 94,000

Investment required

The cost of home insurance in India is surprisingly low considering the value of the asset it protects. For example, a Basic Fire Insurance covering approximately Rs. 35 lakhs of assets (structure and contents) against fire and specified perils including terrorism will cost you only Rs. 2,000 per annum in premiums.

How can you ensure full claims?

  • Make sure your legal documents are in order and up to date
  • The condition of the item prior to damage will be checked by the insurer. For example: if the home is poorly maintained, it will be hard to determine how much loss was caused by the event and how much damage already existed. This gives the insurer a way out of paying the full claim. So always pay attention to repairs and maintenance
  • Ensure that the damage is not tampered with as insurer will inspect before passing claims

Some things to remember:

  • If you are an apartment owner, get together with the residents of your building or housing society and buy home insurance which covers the entire property.
  • Home insurance only covers the structure above ground and not the land it is constructed on.

A final note

Home insurance should be a top priority for every homeowner, landlord, and tenant. If you don’t have home insurance or you think you are underinsured, take quick action. We can help you find the correct home insurance policy and safeguard your dream home.