Given that property is always such an expensive purchase, whether or not to buy property insurance should be a no-brainer: the answer should always be a loud, resounding ‘Yes’! But the reality in India is quite different. Despite the real estate boom in the recent past, where people have increasingly investing in property, the demand for property insurance has largely remained stagnant.
Common sense tells us that this should not be the case. What if something bad were to happen? This ‘something bad’ could mean anything: fires, earthquakes, cyclones, burglary, you name it. Any of these could leave you considerably poorer as you struggle to pick up the pieces by commencing repair work or replacing destroyed/stolen items. In such situations, property insurance could prove to be a godsend.
Also read: Take these 5 smart steps before taking term policies
What Can You Insure?
Property insurance is largely of two types: structural insurance and contents insurance. Structural insurance covers damage to the structure of the home while contents insurance deals with your belongings within the home (e.g. TV, washing machine, furniture, etc.). The two can be purchased separately or in a combined policy. If you own the home that you are living in, a policy that combines structural and contents insurance is your best option. In the case of rented properties, this should be approached differently. Tenants would do well to purchase only contents insurance to cover their belongings, since the responsibility for carrying out structural repairs falls to the landlord. Landlords, on their part, should buy coverage for structural damage, but not contents insurance (assuming that the items within the home belong to the tenants).
What types of coverage are available?
Property insurance covers you against a wide variety of risks. The most common ones are fire, burglary and natural calamities. Damage caused by vehicles might also be covered by your insurance policy. Optional covers include damage due to riots or terrorism.
There are some limits, however, to the extent of the coverage available. For instance, earthquake cover is not offered to an individual apartment; you will have to rope in the building society to acquire quake cover for the entire building. Theft cover is easily available, but it will not pay out if the theft occurs during a period when the house has been unoccupied for a period of at least 30 days or if your domestic help were involved in the incident. Those who keep substantial amounts of expensive jewellery at home should note that a standard property insurance policy will provide coverage up to a maximum amount of Rs. 10,000; more comprehensive jewellery cover will have to be purchased separately through an all-risk policy.
What kind of sum insured should you expect?
The sum insured is calculated differently for structural insurance and contents insurance. In the former, the sum insured reflects the cost of rebuilding the property rather than the current market value of the home. In the latter, the future depreciated value of the items is used to determine the sum insurance.
Note that some policies make allowance for inflation in building costs and increase the sum insured by a suitable margin each year. These are preferable even if they cost a little more. After all, property insurance is quite cheap given the coverage available.
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal.
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