Payal Mehta bought a holiday home in Gujarat some years back -- a nice two-storey bungalow in a small village for Rs 14 lakh (Rs 1.4 million).
Since she took a loan, the bank insisted on a home insurance policy against fire and other perils of the amount of the housing loan.
When the earthquake struck Gujarat in January 2001, thousands of families lost their homes. Mehta thought she was saved and that the insurance money would pay off the bank loan if nothing else.
She was wrong. All she got was a mere Rs 750,000 from the insurance company. Not enough to pay back the loan, let alone rebuild her dream home.
Worse, she had to cough up the balance loan amount or lose even the land on which the house had once stood.
Unlike in developed countries, the awareness of home insurance plans in India is very low. It is only of late that some interest has caught on, partly brought about by demands from banks giving out home loans.
However, in their need to ensure that the policy covers the loan amount, many banks have failed to educate home borrowers to insure their homes at the reinstatement value rather than the market value.
The reinstatement value is the cost of construction and does not take into account the actual market value of the premises.
So, even if one has bought a flat at Churchgate (south Mumbai) or in the suburbs, the cost of construction will be more or less similar -- at about Rs 800-1,200 per square foot.
The insurance company is liable to pay just the reinstatement value subject to the maximum value of the policy taken.
Advise insurance company officials: "Do not insure your property as per the house deed. Rather, one should work out the value of the policy cover based on the size of the flat, taking the super built-up area."
The current going rate for construction in Mumbai city varies between Rs 800-1,200 per square foot. It can also go up to Rs 1,400 per square foot in flats with marble or granite flooring.
Moreover, whether or not one has taken a loan against one's property, home owners are better off purchasing a householders' insurance policy.
Many covers available in the market today are designed to protect one's home and the contents from at least ten risks.
The four state-owned insurance companies as well as a host of private insurers -- Royal Sundaram, Tata-AIG, Bajaj Allianz, Iffco Tokio and HDFC Chubb -- are offering this annual, renewable cover.
Most insurers offer package deals covering risks associated with the property. They insure contents of a home against perils such as fire, burglary (contents excluding jewellery), all risks (jewellery and valuables), breakdown of domestic appliances, personal accident and public liability.
So what is covered under the plan? Perils such as fire in the building, lightning, explosions or implosions, aircraft damages, impact damages, riots, strikes or malicious damage.
Damages arising out of other acts of God like storms, cyclones, flood and inundation, land slides, leakages from automatic sprinkler installations are also covered.
Not only can home owners get protection against natural calamities or manmade damages, a home insurance cover is very handy when one has small children around.
When five-year-old Sam was flying his miniature helicopter in the sitting-room, he accidentally dashed the toy into the television set, causing irreparable damage to the screen.
His father rushed out, saw the state of the set, picked up the telephone. His first call was to his insurance agent to put in a claim for his damaged TV set.
Only then did he call up the TV mechanic. Within a week the TV set was as good as new and Sam's dad was fully reimbursed for the cost of repairs.
Even home appliances are covered by many of these policies against breakdown. Once again, the claimant gets back the reinstatement value. Repair costs are repayed, sometimes with a nominal deduction.
In the unfortunate case of total damage to the home appliance, depreciation at the rate of 10 per cent is levied annually up to a maximum of 50 per cent depending upon the age of the appliance. Items older than 10 years are not insured.
So how what does one pay for such a cover? Janaki Sharma bought a householders' policy from Bajaj Allianz for her bungalow at Lonavla. Together with the contents of her home worth Rs 50,000, she just paid an annual premium of Rs 756.
Essentially, the premium is fixed as per the fire tariff rate of Rs 0.50 per Rs 1,000 sum assured. Hence, the differential between various policies will be the coverage and costing in the non tariff sections only.
The burglary section for instance falls under non-tariff rates and the cost differs from company to company.
The section provides cover against house breaking, larceny and theft. However, it excludes jewellery and valuables since that falls under a separate heading.
Most state-government and private insurance players charge Rs 2.40 per Rs 1,000 sum insured for the burglary cover whereas others like Bajaj Allianz and Iffco Tokio charge Rs 2.25.
Iffco Tokio goes one step forward and covers trees and plants at Rs 7.50 per Rs 1,000, pets for Rs 10 per Rs 1,000, and money up to Rs 10,000 for Rs 5 per Rs 1,000 and documents and cards for Rs 7.50 per Rs 1,000.
What to do to get a claim?
- Report the loss to the insurer, which will then notify a surveyor to assess the loss.
- Documents necessary: filing a police FIR in case of a burglary, fire brigade report in case of fire, valuers report in the case of jewellery lost.
- Do not insure any item exceeding 10 years old.
