Secure your home

Ankur and Rajni Shahi are not insurance brokers, but they could convince you to buy a policy. Two months after the Mumbai-based couple moved into their new flat, a fire caused by a short circuit destroyed furniture and appliances worth 7.5 lakh. “Our bank had offered us home insurance along with our home loan, but we didn’t take it because we weren’t sure when we would get possession of the flat,” says Rajni wryly.
The Shahis are not the only ones skating on thin ice. Though home insurance covers what is possibly their costliest asset, very few Indians understand this and even fewer take steps to cover the risk. In 2010-11 , the 20-odd general insurance companies combinedly sold only 40 lakh insurance policies to cover fire and other perils. In the past 10 years, investors have poured in crores of rupees into building their houses and lakhs on furnishing them. However, the insurance premium in the fire and allied perils segment of the general insurance industry has registered a lazy annualized growth of 7.5%, rising from 3,150 crore in 2003-4 to 5,534 crore in 2011-12 .
What’s more, in some years, such as 2007-8 , the premium income shrunk by over 15%. Home insurance sales shoot up after every catastrophe but once the disaster and its aftermath fade from public memory, the cover is terminated. “It is unfortunate that owners ignore the importance of home insurance. India’s geographical features and climatic conditions in Southeast Asia make it fairly vulnerable to natural disasters,” says Swapan Khanna, co-founder of insurance research and advisory firm I-Save . He points out the estimates of the National Disaster Management Authority, according to which about 60% of the Indian landmass is prone to earthquakes, while 8% of the country is susceptible to cyclones.
What needs to be covered
The good news is that home insurance is very cheap in India and will not strain your wallet. The vital covers your house needs will cost you less than 2,000 a year. The cost of insuring the structure against damage is as low as 50 per 1 lakh. Keep in mind that you don’t need to insure the house for the value of the property but only for the cost of reconstructing it. The costs can vary from 1,500 per sq ft for a basic no-frills structure to 2,500 per sq ft for a premium construction. So, a 2,000 sq ft house should be insured for 30-50 lakh and the cost will be 1,500-2 ,500 a year.
A fire or a flood may not damage the structure, but will ruin everything else inside the house. So you also need to insure the contents of the house against the damage. The cost of insuring contents worth 10 lakh against natural and manmade calamities is just 255.
Then come the covers against burglary and breakage. These are also important and will not cost too much. You can enhance the coverage by adding more sections if you perceive a risk, and if your pocket allows. A standard fire and other perils policy covers damage due to fire, lightning, storm, flood, landslide , earthquake, vehicle impact, rioting, arson and bursting of pipes and tanks. It is possible to buy this as a standalone cover, but most insurance companies encourage buyers to go for a comprehensive plan that covers a wide range of risks.
Who should buy home insurance
Some people think they don’t need home insurance if they live in a rented house. This is a misconception . The house may belong to the landlord but the contents are their own. They need insurance against any damage to the contents (by any natural or man-made disaster) and against burglary . As already explained, these basic covers don’t cost too much.
A wider cover also makes you eligible for a discount on the premium. The insurance companies offer a 15% discount if you take at least four different covers. If you take six covers, the discount is raised to 20%. However, don’t let the discounts make you buy sections you don't need. For instance, if you have rented your house, there is no need to insure its contents. Leave that to the tenant.
There are other covers too, but take them only if you need them. The baggage insurance is a useful cover for someone who is a frequent traveller. For as little as 250 a year, he can cover the loss of baggage worth 50,000 during any journey anywhere in the world. But it may not be of any use to a person who rarely moves out of the city. On the other hand, the personal accident cover has a universal utility. By paying 300 per person, the policyholder can insure his family members against death or injury due to accident for 5 lakh.
Companies also offer discounts if you go for a long-term policy. Before you sign up for a 10-year plan, remember that the cost of construction keeps rising. Ten years ago, a 50 kg bag of cement cost 130. Today, it comes for more than 220. The price of steel, which accounts for roughly 25% of the total cost of construction, has risen from 12,000 per tonne to 36,000 per tonne. So, you may need to review your home insurance every few years. If you live in an apartment complex, chances are your house is already covered against damage. The resident welfare associations of housing societies usually get the buildings insured and factor it into the monthly charges payable by the residents . Companies offer group discounts on such policies. Check with your resident welfare association or builder about this.
Preparing an inventory
If you are insuring the contents, start by making an inventory of the items you want covered. Some companies want buyers to photograph the items and retain their bills as well. However, some companies don’t go into such details and rely on a list prepared by the customer which mentions the item, the year of purchase, model and machine number, and its value. An agent can help prepare the list.
It’s important to revisit this list every year when your policy comes up for renewal. Some of the stuff may have been discarded during the year, so you need to cross them out. Any new purchase will have to be included in the list. While low-value items can be listed without photographic evidence, it is advisable to have photographs of jewellery and other high-value items so that you don't face problems at the time of claim. You will also have to submit the valuation certificate for jewellery.
How to file a claim
Insurance companies have deadlines within which you have to inform them about a loss. These can vary from 7-15 days, so do it as soon as possible. Even if you are not in a position to fill and submit a detailed claim form, call up the call centre and intimate them about the loss. Some firms even let you do this with an SMS or e-mail .
Before you file a claim, you will have to lodge an FIR at the police station. A copy of the FIR needs to be submitted to the insurer, along with the claim form.