Taking Cover: Protecting your prized possessions

For most of us, a home with all its endearing contents is often the lone prized possession we longed and worked hard for.

However, home insurance remains not so popular, perhaps due to lack of understanding about its benefits.

For one, it helps to protect your home and precious belongings as it gives you a total coverage against financial liabilities arising from loss or damage of your home and its contents, due to natural or man-made reasons.

A home insurance policy gives financial coverage towards cost of repair or replacement and reconstruction of property and contents due to damage against floods, storm, earthquakes, fire or vandalism.

However, loss and/or damage arising out of war and foreign hostilities, due to nuclear perils, by pollution and contamination, and gradual deterioration, wear and tear are not covered.

It allows you to acquire additional and specific covers for burglary and theft, terrorism, loss of rent, additional rent, etc, for specialised protection, depending on your location and requirement. Similarly, accidental loss or damage to portable equipment, jewellery and valuables and electrical, mechanical breakdown of electrical appliances can also be covered if it’s required by individuals.

If your home gets damaged, you may need temporary accommodation or even a hotel stay. Such temporary resettlement expenses are allowed for maximum duration as agreed at the inception of insurance cover. This is a big relief when you consider the stress of finding extra funds for transitory lodging.

Home insurance can be purchased by either the owner of house for building and contents or by the tenant for contents. A rent agreement may require the tenant to take insurance for the building as well — in such a case, the interests of both owner and tenant have to be covered.

Sometimes, the housing society also takes an insurance cover for all the flats in the society along with common facilities like roads, boundary wall, lobby areas, parking, lifts, etc. Insurance cover may also be purchased by the financier of the property in case a loan is taken on the property.

One must insure the structure of the house based on the reinstatement value — simply, the reconstruction value, including interior work/decoration.

This is based on two key aspects: built-up area of the house (in sq ft) and the cost of construction in that area.

In terms of contents and valuables, the insured sum will be calculated on the basis of the cost of replacement of the assets at home.

This is an estimate of the cost of assets and contents available at home, which include furniture, fittings, electronic equipment, etc. Once you have decided the sum insured for the structure as well as contents, simply choose the closest sum insured value and arrive at the premium.

A few companies, like HDFC ERGO and Bajaj Allianz, also offer insurance cover for building (for flat in apartments) for more than reinstatement value.

Here, the higher sum insured can be equal to either the circle rate or the Ready Reckoner price (as decided by the municipal corporation of the State) or the value as appearing in the registered agreement (with the registrar of property), whichever is higher. In such a case, if the flat is destroyed and is a total loss, the company will pay the agreed sum of insurance, where insured can buy a new flat with the compensation received, elsewhere.

Premiums for home insurance depend on the coverage being opted for. Buying a long term policy will offer a long term discount.

Premium also depends on the covers opted for — whether cover is only for fire and allied risks, or burglary cover for contents or breakdown cover for electronic equipment, etc, are also included.

For fire and allied risks, for a sum assured of ₹10 lakh for 10 years, the premium could be as low as ₹3,000 plus GST (for a structure only cover) for 10 years. However, depending on the household items that are covered and other risks opted, this would go up.

But this does not mean that you should try and reduce the premium by choosing lower value for your assets.

The writer is Member of Executive Management, HDFC ERGO General Insurance

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