You work hard and save money to buy a house and household appliances. You take utmost care to secure your dream house, yet there is the risk of a natural or man-made catastrophe. If you cannot prevent it, transfer the risk. Consider buying a householders- or home-insurance policy.
Scope of cover
A package householders policy provides cover to the structure of the building as well as the contents of the house, that belong to the proposer and his family permanently residing with him or her. In case you are living in a rented house or in an apartment where the building is insured by your society, you can buy a customised plan which covers only your household articles and not the building. Some common risks covered under the policy are fire, earthquake,
flood,burglary, bursting and overflowing of water tanks, breakdown of domestic appliances and loss or damage of jewellery and valuables by accident or misfortune. Sum insured for certain items under contents, such as works of art, jewellery or other valuables, may be subject to a limit. A householder policy also provides cover against the insured’s legal liability for bodily injury or damage to property of third party. Some policies also cover rent for alternative accommodation during reconstruction of a building that has been damaged by fire or other disasters. Risks covered in the policy and premium may vary slightly from one insurer to another.
Guide to choose the sum insured
The purpose of insuring the building is that, in case the building is damaged due to any disaster like fire, earthquake or flood you should get financial support to reinstate it. So the sum insured for the building should neither be the cost of acquisition nor the current market value of the house but the current construction cost because market value of the building includes cost of land on which the house is built. Don’t include the cost of land in the sum insured but don’t forget to add costs for removal of debris. On the other hand, for the insurance of household items sum insured should be the market value of these items i.e. the value for which these used items could be bought or sold in the market.
If you want to insure the breakdown of domestic appliances, then the sum insured should represent the current replacement value of a similar item. For instance, if you want to insure your two-year-old, 42-inch Sony LCD TV, the sum insured should be equivalent to the current cost price of a new 42-inch Sony LCD TV. However, the claim amount payable would be the amount required to bring the damaged item to the same condition as it was prior to the damage subject to the adequacy of the sum insured.
Points to remember
Unlike a life insurance policy, householder insurance policies are contracts of indemnity, which means it is a cover that only restores the insured to his original financial position but the insured cannot gain from the policy. It is very important that the sum insured is adequate because if you are under-insured, claim payments will be reduced by applying the average clause where your claim will be reduced in proportion to the level of under-insurance. For instance, if your property is worth `1 crore but it is insured for `75 lakh and the loss is `50 lakh, claim will be settled to the extent of 75% of `50 lakh i.e. `37.5 lakh and you will have to bear the balance. You must ensure that your house is adequately insured at all times taking into account the renovation, enhancement made to your house or some addition to your household items. Do not just send the renewal cheque when it is due; take the time to review your cover. Read your policy carefully. Some risks are not covered in certain conditions like if the house is left unoccupied for more than a specified period of time. It does not make sense to leave any scope to lose what you have invested in your home. After all, homes are not built every day.