Personal Finance

Plan for a comprehensive home insurance

Bavadharini KS | Updated on September 22, 2019 Published on September 22, 2019

Go for a policy that protects both the structure of the house and its contents

Home insurance is a crucial back-up plan if things go wrong with your property. Fire insurance is a basic policy that covers the structure of a house. Householder’s package policy or householder’s insurance is a comprehensive cover that protects the structure of the house and the contents within. It also covers burglary, breakdown of electrical, electronic and mechanical appliances, and damages. Here is what a policyholder should keep in mind while getting a comprehensive package.

Sum insured options

Insurers usually offer three sum insured(SI) options for safe-guarding the structure of a house. One, SI based on the reinstatement value. This is the reconstruction value of the building or structure, determined by the reconstruction cost (excluding the land cost). This cost is usually arrived at based on the area of the building, as per the registered sale deed and the current market price in that area.

Two, SI based on indemnity value. It depends on the reconstruction value determined by the reconstruction cost of the building (excluding the land cost), less depreciation.

And lastly, SI on agreed value basis. This is calculated by multiplying the total square feet of the area (mentioned in the sale deed) with value per square feet as per the guideline value or the ready reckoner issued by the respective State government.

Note that not many insurers provide all three options at the time of policy purchase. For instance, in Royal Sundaram’s Gruh Suraksha (comprehensive cover), the SI is on the reinstatement value. Bajaj Allianz General Insurance, on the other hand, provides all the SI options for the policyholders.

Similarly, SI options are available for the contents of a house as well, at replacement value, less depreciation or excluding depreciation.

Rakesh Jain, Executive Director and CEO, Reliance General Insurance, says: “As a thumb-rule, policyholders should take the construction cost of home insurance (sum assured) at ₹2,000-3,000 per sq ft. After adding the value of contents in the house of about 1,000 sq ft, the insurance sum will work out to ₹20-30 lakh.”

Escalation clause

Normally, an individual can get a home insurance policy for 30 days, one year or 20 years. While availing yourself of a home policy, keep in mind the escalation clause; it plays a significant role at the time of claim.

Policyholders can opt for an escalation clause that allows for increase in SI every year, factoring in inflation costs. You can also opt out of this clause to save on the premium outgo. But any damage to the asset will pinch your pocket. The clause varies with the insurer. Royal Sundaram’s Gruh Suraksha, for instance, offers 10 per cent increase in base SI each year for the entire policy tenure.

To stay in sync with the prevailing market scenario, look into this clause before you go for a home policy.

Home insurance comes with an ‘excess’ clause; you have to pay a sum of money before the insurer settles your claim. For instance, in Bajaj Allianz’s All Risk policy, policyholders can opt for an excess and get discount on the basic premium rate for the building’s structure. If you choose to pay ₹10,000, you get 10 per cent discount on the premium, and for ₹50,000, you get a 35 per cent discount. For insuring the contents in your house, you get a premium discount of 50 per cent for ₹20,000.

The premium depends on the type of SI chosen, the excess that you have agreed to pay, the type of insurance opted for, and the escalation clause.

Add-on covers include loss of rent, tenant strike, keys and locks replacement, dog insurance, lost wallet and ATM withdrawal robbery.

Note that insurance companies may not provide for damage, if any, caused, if your property remains vacant, usually beyond 30 days.

Similarly, property beyond a certain number of years may not be insured.

Published on September 22, 2019
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