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All you need to know about home insurance

In an interview to CNBC-TV18, personal finance expert, Pankaj Mathpal of Optima Money Managers explained the conpect of home insurance and various aspects of the same.


Insurance cover for your home loan: Why do you need it?


Below is the verbatim transcript of Mathpal’s interview with CNBC-TV18.


Q: How beneficial is it for a person to buy home insurance? What all can we cover when we only buy a home insurance product?


A: Home insurance is very important though it is not very popular because there are two types of home insurance policies; one, which covers the basic structure of building and another policy, which covers the content. There maybe a policy, which is a combination, which covers building structure as well as the household articles.


So, when one is insuring a building or the basic structure of house, at that time it is important to buy the sum insured for cost of construction. I mean a house maybe costing Rs 1 crore but this value of Rs 1 crore is because of cost of land or market value of that house. However, cost of construction will be much lesser. Therefore, when one chooses the sum insured for that house, it is cost of construction or reinstatement value of that house, which may include the cost of water tank or security system in the building.


As far as household articles are concerned, there is different cost for all the items but it should be depreciated value, means today’s value of these used items, if one wants to sell those items or wants to buy, the item in the same condition, how much that will cost.


Most important part, when one renews policy, unlike life insurance one has to pay same premium every year, here, price of those things, means depreciated value or in case of gold jewellery, maybe the price has gone up. So, every year, when it is renewed, one should see that time the value of those household articles appliances, jewellery or even public liability is also insured under home insurance policy. Therefore, home insurance is very important because any natural calamity or manmade calamity, fire, theft, burglary or even earthquake, etc is covered in these policies. So, people must consider home insurance.



 
Caller Q: I want to purchase a house after three to five years, for that I want to invest some amount for down payment. I want the down payment about Rs 7-8 lakh for that I have already invested Rs 6,000 in three Systematic Investment Plan (SIP)- Birla Sun Life Frontline Equity, HDFC Top 200 and Birla Sun Life Midcap. I also want to invest Rs 5,000?


A: The investment horizon is only three to five years so you know equity is very volatile in short-term. Considering present market conditions, I would say that you have been investing Rs 5,000 in equity mutual fund, you can continue with those funds but additional Rs 5,000 what you are planning to invest, I would recommend either you go for bank recurring deposit, which is assured return on investments or invest in some income funds of mutual funds like IDFC Dynamic Bond Fund or SBI Dynamic Bond Funds. However, I will not recommend investing in equity mutual funds in addition to what you have been investing already.


Second, as your target is Rs 6 lakh to Rs 7 lakh, it will depend on how much you have accumulated by now because if I consider around 8 percent return from your future investment, you can accumulate around Rs 4.5 lakh in three years and if your horizon is five year then a bit more than that.


However, total Rs 7 lakh to Rs 8 lakh will depend how much you have invested? How much has been accumulated by now? How much returns your mutual fund delivers in future. Right now, considering you have allocation in equity, I am recommending these debt mutual funds.

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