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A house is often the most expensive asset that is owned by an individual. The average Indian spends a good part of his life's savings on buying and furnishing his house. Unfortunately, he does not pay too much attention to protecting it against natural or man-made disasters. He will insure his car, which costs Rs 3 lakh, but his Rs 30 lakh house and its contents are usually not covered.
While it's true that the probability of damage to a car is greater than that to the house, but as the recent earthquake in Sikkim has shown, nature is unpredictable and a calamity can strike anywhere. It could be a flood in Mumbai, a tsunami hitting the coast of Tamil Nadu, or an earthquake in Latur.
While you can't avert natural calamities, you can certainly protect yourself against the financial implications of rebuilding your damaged property. For a small premium of less than Rs 1,800 a year, a home insurance policy offers a cover of Rs 24 lakh to secure the structure of the house against damage by natural disasters and man-made perils (see table). Here are a few things you should keep in mind while buying home insurance.
Cost of structure, not property
Your property may be worth Rs 60-70 lakh, but you don't need such a big cover. The insurance is only meant to cover the cost of rebuilding or repairing the damage to the building, not the market value of the property. The cost of rebuilding the structure is Rs 1,500-2,000 per sq ft depending on the quality of construction. A 1,500 sq ft house built with the best material should be covered for at least Rs 30 lakh (1,500 ft x Rs 2,000 = Rs 30 lakh). It is beneficial to opt for a multi-year policy, which offers peace of mind along with with attractive discounts. Remember, however, that the cost of construction keeps rising, so it may be wise to review the home insurance cover every few years.
Cover the contents
Besides the structure, you also need to insure the contents of the house against damage. Not doing so can prove expensive as the total value of the contents could be greater than imagined. A rough calculation shows that the contents of an urban middle-class house are worth almost Rs 12-15 lakh. This would usually include furniture (Rs 3-4 lakh), gadgets (Rs 2-3 lakh), appliances (Rs 1 lakh), furnishings (Rs 2 lakh), clothes (Rs 2 lakh), utensils (Rs 50,000) and ornaments (Rs 2-3 lakh).
Besides natural disasters such as storms, floods, or earthquake, the contents also face the risk of burglary or damage due to fire and short circuiting. Therefore, it is important to include the contents while picking a home insurance policy. The best option is to go for a package deal. If you take a comprehensive householder's policy, companies offer additional covers along with the home insurance.
The personal accident cover is especially useful as it provides compensation if an injury sustained in an accident results in temporary or permanent disability and affects the livelihood. In case of death due to accident, the nominee is given a lump sum as compensation.
Additional covers
Besides this basic protection, insurance companies offer add-on covers, such as the cost of living in a rented accommodation while your house is being repaired. If the house is rented out, the owner can take cover against the loss of rent if a natural calamity renders it unfit for occupation. However, these covers are for a limited period of up to 12 months after the disaster.
As far as man-made threats are concerned, the two major risks are terrorism and riots. Any damage rendered to the house by these can also be covered under the home insurance policy. How does one make a claim? After the calamity, inform the insurance agent about the destruction. The surveyor will undertake the process of estimating the damage. As it is difficult to list out everything you own after it is lost, especially at the time of a crisis, it is important to prepare an inventory of the contents beforehand and keep it in a safe place. This will make it easy both for the policyholder and the surveyor.
Home insurance protects your house at a low cost. In fact, the daily cost of covering it for Rs 25 lakh is not more than the price of a cup of tea. Even so, the benefits far outweigh the cost.
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