Thanks for visiting Capital Advisor. I frequently update this blog to cover various topics on personal finance such as investment strategies, financial products that you should buy and ones that you really should stay away from, financial calculators, emerging themes such as early retirement and financial independence, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.
The dream of an average lower or middle-class family in India is to own a house even if it means 1-BHK. Moreover, the easy availability of financing options has turned dreams of thousands of home buyers into reality. But what if a natural calamity destroys this dream? Or what if your house is burgled and you lose possessions worth Rs 10 lakhs or more? Whom will you blame?
Rise in natural disasters in India
The basic elements of Nature — Fire, flood, air, water and space along with other nature’s forces can create disturbances in the Universe, which are unexpected. No one is prepared to face these unforeseen circumstances. Though the government may support you with relief fund in case of natural calamity, will this fund be sufficient to rebuild the same house which you had earlier? Or can you spend Rs 15-20 lakhs out of your savings to rebuild your house?
Man-made risks are on the rise
In 2014, house theft cases increased by over 300% with 12,276 cases reported in the year. The cases of burglary get increased especially during vacations when scores of the family go for holidays.
Benefits of home insurance
Though some events are uncontrollable, you can alleviate the risk by buying home insurance:
- Natural calamities can strike anytime and anywhere: It becomes important to fix the perception that misfortune happens only with other people. It takes years and sometimes decades to save the hard earned money to build a dream home where you can create beautiful memories with your family. With a home insurance policy, you can protect your house against all types of “Acts of God” or natural calamities like cyclone, flood, landslides, etc.
- Man-made risks are the reality: Like every TV crime show proves, despite the trendiest and fanciest of safety equipments, human-engineered disasters like burglary, theft, etc. are prone to happen. Further, acts of terrorism, riots, and strikes pose new threats to your home. While not every home insurance policy offers coverage against these risks, you can get the coverage in the form of a rider.
- Cover is required irrespective of where you live: Even if you are living in a rented apartment or a housing society, you need home insurance to protect your place. In case you are a tenant, you should go for the policy that covers the content of the house.
- Your house might have precious items: You might have spent thousands or lakhs in furnishing the interiors of your house and beautifying it with domestic appliances, light fixtures, furniture and more. Many of us also have some items that hold sentimental value like artwork, jewellery, etc. But what if someone steals them? Apart from the emotional loss, there will be a financial loss also. A home insurance ensures that precious items which have sentimental value are protected from all hazards.
- You might need to relocate to a new place: In case your house is being reconstructed, you may need to find an alternate place to live, which means spending extra money as rent. Some insurers bear additional expenses of rent for alternative accommodation, which ensure that you have a comfortable way to live while your house is being reconstructed.
Chosen with care, a home insurance policy can give comprehensive cover against all types of perils. Typically, it has the following parts. As a homeowner, you can either opt for both the covers or for one. There are various other riders also which can be added to the insurance policy.
- Cover for structure: It is calculated in three different ways:
- Reinstatement value: It is calculated on the basis of the built-up area and the total construction cost of the property.
- Agreed value: It comprises the total area of the land and the cost of the house.
- Indemnity value: It includes the total property cost and depreciated value of the property.
- Cover for content: While it is expensive to rebuild the structure of the house, contents of the house also involve a large amount. Therefore, while protecting the structure, it makes sense to insure content of the house also. While buying the policy, make sure to give the correct valuation of all the insured items to the insurer through bills and invoice.
- Riders: You can expand your coverage by adding riders to your main home insurance policy. For instance, rent cover helps you if you need to stay at a temporary location while your house is being rebuilt. Some insurers also offer riders like public liability, cost of removing debris, architect’s fee, personal accidents, etc.
It is imperative to take the optimum coverage under home insurance— neither too high nor too little. You can go for the long term home insurance policies, in which the coverage is offered for five or ten years in one go. The longer you take the cover, the cheaper the premium will be.
As said by Jane Sherwood Ace, home wasn’t built in a day, so why not go the extra mile and safeguard the abode by insuring it with a comprehensive home insurance policy?
Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.