Home Insurance

What is Home Insurance?

Buying your home is biggest affair since you invest lots of Hard-Earned 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.

  1. Features of a home insurance policyA 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
  2. Types of home insurance plansHome insurance in India comes in the following variants –
    • Structure insuranceThis 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 insuranceThis 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 insuranceThis 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 insuranceThis 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 insuranceThis 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.
  3. What is covered under home insurance?A home insurance policy covers the damages suffered due to the following instances –
    • Fire 
    • 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
  4. Additional coverage benefits under home insuranceBesides 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 rentIf, 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 accommodationUnder this add-on the rent paid for alternate accommodation is covered when your home is damaged and you live elsewhere
    • Replacement of lock and keyThe add-on covers the cost of replacing the lock and key of your home.
    • Escalation coverUnder this add-on, the increase in the value of the home due to inflation is covered.
    • Terrorism coverIf the plan does not cover terrorism-related damages you can choose this add-on to include such damages.
  5. 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
  6. Benefits of home insuranceHome 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:

  1. Agreed Value BasisThis 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.
  2. Reinstatement Value BasisReinstatement 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.
  3. Indemnity Value BasisThis 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.
  4. New for Old BasisThis 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.
  5. Indemnity Basis for contentsUnder 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.

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