A Beginner’s Guide to Home Insurance

The year 2015 witnessed great destruction due to disasters like Chennai floods. Such disasters have created awareness amongst people to protect their hard-earned assets against such natural calamities.

Misfortunes can strike at any time. But when they do occur, we should be geared up for it. One way to do so is by insuring our home and its belongings.

Home Insurance is a kind of property insurance crafted to protect an individual's home and its possessions against damages due to natural or man-made disasters. It also offers liability cover for accidents on the property or in the home.

Importance of having a home insurance policy

Buying a home insurance policy ensures that you stay financially stable in case of damage to your property or possessions. Home insurance requires you to pay a relatively small fee (in the form of premiums) to an insurance company. This expense comes in exchange for an assurance from the insurer; an assurance that the insurer will bear any losses that you incur due to an uncertain damage to your property.

Here is why you need to insure your home and its possessions:

To recover from natural/man-made hazards:

The vehemence of quakes, storms and floods can raze down your home completely. Property damage cover offers protection against such eventualities and equips you financially to recover from the loss and rebuild your home. This coverage also includes damage or destruction caused to the property by human acts such as vandalism or theft.

Covers temporary living expenses

 If your home has become uninhabitable due to the damage it suffered, you might need to stay in a rented apartment or move into a hotel temporarily, until your home is repaired or rebuilt. Home insurance covers provided by ICICI Lombard, Bajaj Allianze include this in their cover.  

Make up for the loss/damage to your assets and personal belongings

Home insurance covers not just your property but also your personal belongings including clothes, ornaments, appliances, furniture and much more.

Protection against liability

 Liability coverage specifically covers injuries/damage caused by you or your family to the other party within (or even outside) the confines of your property. For instance, you throw a party for your family and friends at home. One of your friends get hurt and accidentally falls and hurts himself badly. If you have a liability coverage on your home insurance, your insurer will pay for the expenses incurred on your friend’s treatment, thus protecting you from any possible legal problems.

To avail house loan from banks

 If you have ever applied for home loan, you must know that banks lend out a home loan on a pre-condition that the home you are planning to buy with the loan is insured. Home insurance, as a matter of fact, is a preliminary requirement to be eligible for a home loan.

Basic of home insurance

There are two kinds of home insurance policies, namely, building insurance and content insurance. Building insurance provides coverage for the physical structure of your home against natural or man-made disasters. While, content insurance covers all household items. The valuation of these items is done on the basis of its market price. You can choose either or both of kinds of cover to insure your home.

While opting for a policy, one needs to be wary of how the sum insured is determined and its possible implications, in case of a claim.

Reinstatement value:

In case your house has been insured on reinstatement value, only the cost of construction will be taken into account while determining the sum assured as well as during claim. This will be inclusive of labor cost, material cost or cost of reconstruction of the house.

Indemnity value:

In case your house has been insured on the basis of indemnity value, the sum insured + amount paid will be determined by deducting depreciation (on the basis of the age of the property) from the reinstatement value.

A home insurance policy would typically cover damage caused by natural and man-made disasters including fire, storm, lighting, earthquake, explosion, riots and damage caused due to the

bursting of pipes, acts of terrorism and burglary etc. However, options like terrorism cover and rental for alternative accommodation is categorized as optional and hence, it needs to be specified separately.

Exclusions of a home insurance policy

Just like any other policy, home insurance too comes with certain exclusions-

• Damage or loss caused due to radioactive contamination or ionizing radiation that may arise while burning nuclear fuel. Also, your house won’t be protected from any explosives or toxic properties from nuclear equipment.
• Revolution, rebellion, civil war or insurgence
• Military attack (irrespective of whether or not it is approved by the government)
• Minor damages like scraping of wall paint,  cracks or termite infestations
• Intentional damage or loss
• Act of terrorism (unless you opt for separate coverage by paying additional premium)
• Rare work of art, collectibles and cash

Therefore, it is advisable to read about the policy you intend to buy and learn about its inclusions and exclusions beforehand.

Factors to keep in mind while buying home insurance

Choose your sum assured wisely

Choose sum assured on the basis of the market value of your property and its belongings.  Do not settle for lower sum assured just to bring down the premium amount. Under covered property may cost you dearer at the time of eventualities.

Enquire well

Enquire about every minute details of the policy you are interested in. Not all insurance policies cover everything. Learn about all its inclusions and exclusions, and also enquire about additional cover for protection against act of terrorism etc. depending on your requirement.

Read the fine print carefully

Read the policy documents carefully and ensure whether all the terms and conditions are at par with what was agreed upon.

Never hide

Do not hide property-related information from the insurer, especially those that have had accidents or renovations so as to make your claim-settlement procedure hassle-free when needed.

Compare and Buy

One common mistake that most of us make while buying a home insurance policy is lack of research. For a comparative platform, you can log on to Policybazaar.com to make an informed decision, instead of a hurried one.