Home Insurance- do you need it and why?

Home Insurance- do you need it and why?

Imagine a situation where you have invested your life savings in buying your dream home for which you are also paying off a hefty mortgage. Sounds pretty common right? That’s the scenario most of us are willing to encounter when it comes to buying our preferred homes. However, in case of any untoward incident, natural calamity or simple bad luck that damages your beloved home (God forbid it ever happens), there is mostly nothing left to fall back on. Picking up the pieces from these debacles can be a nightmarish affair as we can well imagine.

Home insurance is what works as your ultimate safeguard in these kind of situations. It is what gives you total peace of mind and something to fall back on in case such incidents occur. The basic logic will always make sense, i.e. your home is one of your largest assets if not your biggest one. As a result, getting it insured is always the best way out.

Home insurance-exploring it further

Home insurance policies usually have two types, namely fire insurance policies which are basic ones and comprehensive policies which are often referred to as HPP or householder’s package policies. The former offers coverage for the home against fire outbreaks and related dangers including floods, riots, storms and lightning among others. Some insurance companies may seek an additional premium for covering landslides and earthquakes as well. There may also be add-ons for covering terrorism.

HPP is a product which has more extensive coverage. One portion covers everything else mentioned above and the second offers coverage for what the home contains. Tenants in this case can choose coverage only for the contents of the home. There are other optional coverage add-ons including electrical/mechanical faults or breakdowns, thefts/burglaries and other damages.

Things that you should always keep in mind

  • The home value is based on three factors, i.e. the building, land and locality costs. Insurance coverage is only for the building cost. For instance, in case the market value of the home is Rs. 50 lakh and the building cost is Rs. 25 lakh then the policy will cover only the latter aspect. The civil contractor informs about the construction cost which varies from one city to another.
  • In case the land is insured, rebuilding the house is possible. However, if there is an apartment, a single individual cannot get the entire structure rebuilt. Hence, housing societies should ideally have insurance purchased for the whole property in question.
  • Home insurance can be purchased on the basis of the depreciated cost/market value and also on the reinstatement basis. Market value does not equate to resale value.
  • Whenever you re-sell any property, you also get the land and locality value. In the insurance context, market value is the value of the home after taking depreciation into account.
  • Insurance companies may depreciate the overall market value by around 2% annually up to 100% in a period of 50 years.
  • Reinstatement equates to the value of getting the home reconstructed. The insurance company will not be deducting depreciation in this case. This is advisable in case of insuring the contents of the home. The insurance company will be settling claims only post reconstruction of the home.
  • Partial payments may be made by some insurance companies for aiding reconstruction of the home.
  • Always review the coverage that you possess on a periodic basis in order to make sure that you have enough coverage.
  • Insurance coverage is not too expensive, taking both the building and the contents of the home into account. You can get add-ons like theft and burglary as well if required.
  • Upon a claim, the insurance company will extensively scrutinize the goods which have been damaged. You will have to make sure that the right declaration has been made and you have ample proof. Claims may be rejected by insurance companies on grounds of the building being maintained poorly or there being any unauthorized construction.
  • You also get protection from lawsuits related to the property with home insurance which covers any unfortunate incidents where you end up doing accidental damage to someone else’s property. It also covers medical expenditure of a guest injured in the property.
  • Always keep solid proof of all the items insured in order to be protected at the time of making the claim.
  • You cannot claim any construction which is legally unauthorized so make sure that you invest suitably.
  • At the time of renewing the insurance policy, make sure that you obtain a quote of reconstruction costs from the contractor for getting comprehensive coverage.
  • Home insurance policies only have validity for the building and the contents of the same. The land is not covered by these policies.
  • Tenants should be insuring the contents of homes that they are staying in while homeowners should be insuring the building if it is an independent home while apartment owners should be insuring their own apartments and contents along with getting their housing societies to insure the entire residential complex.