February 13, 2013 / 19:14 IST
By Lovaii Navlakhi, MD & Chief Financial Planner, International Money Matters
The AC at a neighbour’s house caught fire due to a short circuit and the entire living room was engulfed in flames. Luckily nobody was at home so there were no casualties but they lost furniture and appliances worth a few lakhs. They had moved into this house only a few months back and hadn’t really considered home insurance. Now due to this incident all of us in the building have woken up to the need to insure the house and the various things of value in it.
People put in their savings of a lifetime into a house – building it and decorating it; take on loans and pay 30 percent - 50percent of their income in form of EMIs; but when it come to keeping their house safe, beyond some basic security measures, one doesn’t do much. No wonder that the insurance premium in the fire and allied perils segment of the general insurance industry has registered a lazy annualised growth of only 7.5percent in 2011-12 and its mostly commercial property which is insured against natural and manmade hazards, not residential.
While it is perhaps the costliest of your assets, the house and the valuables in it are the most ignored in terms of insurance. You insure your life, health and car; likewise you need to insure your house and all the precious belongings in the house to protect it from natural disasters such as floods, fire, earthquakes, storms, cyclones and man-made calamities such as riots, terrorism, leakages as well as burglary.
Here are some tips to assess your ‘Home, sweet Home’ and the contents in it so that it can be adequately insured against any kind of damage.
1. It is not the market value of the house that can be insured but the value of the structure or what it would cost you to reconstruct that structure if it were damaged by any natural or man-made disaster.So if you have a house or flat of say 1500 sq.ft., the cost of construction on which is Rs.1600 per sq.ft., then the insurable value of the houseis Rs.24,00,000.
2. Consider all the contents in the house while calculating value – include furniture, electrical and electronic appliances and gadgets (refrigerators, TV, DVD player, etc.), clothes and furnishings, expensive curios and display pieces, jewellery. Cash is not covered by any insurance company. Remember that insurers cover all contents of the house and not selective items and they take into account depreciation on the items at the time of a claim.
3. Most insurers have a limit on the extent of cover for jewellery. It can be covered upto 25percent of the total value of contents or 1 lakh whichever is lower – this figure could differ with insurance companies, so it becomes a factor to consider whilst choosing an Insurer. So this implies you are better off storing and thus securing your jewellery in a bank vault/locker.
4. Add the total home insurance cost by putting together costs for house or flat structure against fire and other perils, contents against burglary and theft, and gadgets against damage. This would give you the total premium that you would have to pay.
Insurance companies give you a discount if you were to take a policy for a longer duration instead of annual. They would also include personal accident and baggage loss in the policy. Some companies would even compensate for renting a new place if they were forced out of their homes by a natural calamity.
Getting home insurance is not a onetime exercise – you need to assess the cost of construction as inflation would push up that value and increase your cover with every new valuable item you add to your home.
Don’t wait for something to happen to wake you up to the benefits of insuring your house. Do it today.
