Insure your Home the Smart Way...
All of us start our career with lots of aspirations in life. These aspirations can be to live in a big home or own a fancy car. We invest towards these goals using instruments such as mutual funds, FDs, and the Public Provident Fund. With careful planning and investing towards the goal, most of us are able to achieve our dream home by the time we turn 35-40. Our dream home becomes the heart of the family and why not, it is the place of innumerable memories. Now it becomes our responsibility to protect our dream home against any of life's uncertainties. And the way to do this is home insurance.
In India today, the general public does not have the same kind of knowledge of home insurance as we may have on life insurance or health insurance. This article will help educate us on what home insurance is and also walk through some key points in the home insurance policy document.
What is home insurance?
Home insurance is nothing but insurance for your home and certain specified items within it. Typically, home insurance policies will cover your house (the structure of your house) against certain calamities, misfortunes or disasters, and also cover some of the items within it that you choose to insure, such as art, antiques, precious stones and so on, up to a certain extent.
What are the typical events covered under home insurance?
Different policies have different inclusions under their 'insured perils'. Insured Perils, as they are called, will typically include fire, burglary, housebreaking including larceny and theft, and special perils such as lightning, explosion / implosion, aircraft damage, and so on.
The list of insured perils also may include (this varies from policy to policy but most policies do insure against these):
Keep in mind that different policies cover these points in different ways. Depending on where you live, it is vital to go through the policy document for those calamities that are more specific to your geographical location.
- Riot, Strikes, Malicious Damage (also known as RSMD)
- Storm, Typhoon, Flood, Inundation (STFI)
- Impact Damage: loss or visible damage caused by the impact of a vehicle, train, or animal that is not owned by the insured.
- Subsidence and Landslide / Rockslide
- Bursting or overflowing of water tanks or water pipes
- Earthquakes, volcanic eruptions, loss by other convulsions of nature, and destruction or damage to the property or its contents due to these reasons
- Damage caused by Missile Testing Operations
- ... and others.
Insurance cover for Structure of the house:
Structure of the house is covered on reinstatement basis. Reinstatement basis means cost of the house to reconstruct it if it is damaged.
Insurance cover for Contents of the house:
Contents of the house such as electronic equipment, furniture, Jewelry, clothes etc. are covered on market value, less depreciation value. The technical term used is 'actual cash value', which means the cost of replacement considering the condition of the item immediately before the loss or damage, the resale value, and the normal life expectancy of the item.
What Premium can I expect to pay for Home insurance?
Home insurance premium totally depends upon the market value of the house and the market value of the contents declared by the insurance seeking party.
What are the General Exclusion under Home insurance?
Again, keep in mind that different policies function differently, and you have t go through the policy document very carefully, yourself, before taking a policy.
For example, ICICI's Home-Silver policy's general exclusions comprise of:
In fact, ICICI's policy has a clause called the Condition of Average, which states: if the insured property be collectively of greater value than the sum insured thereon, then the insured shall be considered as being his own insurer for the difference, and shall bear a rateable proportion of the loss or damage accordingly. Every item, if more than one, shall be subject separately to this condition.
- The first 5% of each and every claim for an Act of God peril such as lightning, storm, typhoon, fire, inundation (STFI), subsidence, landslide, rockslide, to a minimum of Rs. 10,000, regardless of the claim.
This means that if your house is damaged in a storm or a fire or struck by lightning, the first Rs. 10,000 is borne by you, with no questions asked. You may of course have to bear more of this cost yourself, depending on the assessment by the insurance officer.
- The first Rs. 10,000 of all claims, regardless of the claim, as per the policy.
- loss by war, invasion, mutiny, civil uprising etc
- loss by pollution or contamination
- loss to bullion, manuscripts, artworks, precious stones and so on, exceeding Rs. 10,000.
Consider these against the inclusions and you will see that home insurance policies can often be quite restrictive. Which again brings out the importance of choosing the right policy and reading the wordings very carefully.
In fact, ICICI included, most policies will not insure against things such as:
- Willful destruction of property
- Any Loss or damage caused by depreciation or wear and tear and consequential loss of any kind
- Any Loss or damage, directly or indirectly, caused by Nuclear weapons
- Loss or damage by radiation
And so on.
While insuring your home against natural calamities and against things such as theft / burglary and so on is definitely a sensible thing to do, unfortunately the home insurance market in India is still in a nascent stage. If you are willing to accept a policy with a number of restrictive clauses, and the policy you choose is not so restrictive that it defeats the purpose of insuring your home in the first place, then certainly go ahead and insure your home and valuables. But as always and with every type of insurance, read the policy document very carefully. Don't depend on your insurance advisor to summarize it for you.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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