Tips to help you pick the right home cover

For most Indians, our homes are our biggest asset. It’s a place that gives us comfort, peace and security. But how many of us have insured it?

With the news of flooding from various parts of the country, there is a renewed focus on the need to insure one’s home. The destruction that such calamities bring leaves some destitute and forces a huge financial setback on many. With a little planning this can surely be avoided. To ensure protection against such unexpected calamities, a home insurance cover is essential. Listed below are six things one must know about home insurance that will help in choosing an apt policy for their home.

Building and contents: There are two kinds of home insurance policies — basic fire insurance policy and householder’s package policy (HPP). Basic fire insurance covers the building against fire and other perils including lightening, storm, flood and riot. Some policies may include earthquake and landslide as well, if not you may have to get them as separate add-ons. HPP covers the contents along with the building structure against the same perils. It also offers add-ons to cover contents against burglary, damage, mechanical or electrical breakdown. One can also get an additional cover against acts of terrorism. Tenants can get standalone insurance for contents as well. For items that travel with owners like laptops, cameras, jewelry, etc. One can get an additional away-from-home cover as well to protect against loss or damage outside the house.   

Market value or reinstatement: The sum assured can be decided in two different ways: based on cost of items insured or the cost of reinstatement. When the sum is decided based on cost of items, the cover is reduced with time as the goods gets depreciated. Typically, the building is depreciated at 2% annually for a period of 50 years. While this cover may be cheaper, it will not be sufficient to replace the items insured. A better option is to insure the cost of reinstatement - that is the cost it will take to replace the item with a comparable quality of item. Keep in mind that this sum is typically paid against the actuals only after the replacement has been made.

Deductibles: One way of reducing premium for the insurance is by accepting a higher deductible. Please remember that higher the deductible, higher is the out-of-pocket expense. If one chooses to have some deductible, one must make sure it is low enough for her to be comfortable paying it at the time of a claim.

Ask for discounts: Many insurers will provide a discount if additional insurance policies are taken out from the same insurer - for example, coupling in a vehicle insurance with home insurance may reduce the overall premium to be paid. Installing anti-theft systems, deadbolt locks and impact-resistant roof can reduce home insurance premiums significantly.

Alternative accommodation and legal cover: While this is typically ignored by most home owners, getting a cover for alternative accommodation is a must. Especially if the insurance is for reinstatement, as in this case the monies will only granted after the building structure is rebuilt which may take a significant time. Equally a legal cover is needed to cover any liabilities arising from an accident on your premises - this could be someone getting an electric shock while operating some appliance at your home or the damage caused by a falling tile hitting someone’s car.

Re-evaluate sum insured: To ensure that the house is not under/over-insured, it is advisable to re-evaluate the cover needed every five years or so. This is because the costs of building and contents will change with economic cycle and inflation. At the time of claim, if it turns out that house was under-insured all claims will be paid out in same reduced proportion - even if the claim is only for part amount. On the other hand, over-insurance translates into unnecessarily high premium being paid every year.

Several lakhs or a few crores are spent in buying a house in India depending on where you are buying it. Investing a few thousand rupees per year to safeguard what may be your biggest investment is certainly a prudent decision to make.  

GUARD YOUR MOST-PRIZED POSSESSION

• Reducing premium by accepting a higher deductible. Remember, higher the deductible, higher is the out-of-pocket expense
   
• Many insurers will provide a discount if additional insurance policies are taken out from the same insurer
   
• Re-evaluate the cover needed every five years or as costs of building and contents will change with economic cycle and inflation
   
• Insure the cost of reinstatement which is the cost it will take to replace the item with a comparable quality of item
   

The writer is chief underwriting officer, Bharti AXA General Insurance