November 28, 2014

How to choose best home/property insurance in India?

Buying property is one process, but after buying the property, you dump so many items, which may be useful or not. All of such household items have some values. So what if something went wrong like fire or burglary? Therefore, it is very much important to have insurance on the property and valuables.

Home Insurance

Before proceeding further in choosing the best house/property insurance, one must be aware about the features and terminologies used in house/property insurance. Hence, let us start with the basics.

  • Ownership of property-

To buy a house/property insurance, one must have insurable interest in the property i.e. asset must be in possession of his/her own. Simply to say, in case of loss of property, then he will be a person who incurs a financial loss.

  • Types of Home/Property Insurance

Usually in house/property insurance, there are two types. The first type is “Standard Fire and Allied Perils Policy”. This mainly covers perils the property is exposed to like fire, riots, flood, or storm. The second type is “Burglary and House Breaking Insurance Policy”. This mainly covers burglary or theft.

  • How to fix Sum Insured for home/property or valuables you own?

Your premium will be fixed based on the sum insured. Also, do remember that this is the maximum liability insurance company have on your property. Calculation of the required sum insured is very much important. Because sometime you may opt for lower insurance and if in case of any causalities then you may suffer financial burden. So buying right valued insurance is very much important. There are two methods to arrive at a sum insured required.

  1. Market Value Method.

In this method of calculation, the sum insured is arrived at the current market value. So for assets or properties which are in the nature of depreciation, if causalities happen then the owner may not get the full value to replace it with a new one. For example, let us say you have a property, which is currently costing you Rs.1 Cr. Based on this you bought the policy for a sum insured of Rs.1 Cr. But after 2 years if the property value depreciated to Rs.80 larks’ and policy came to claim due to causality, then the insurance company will provide you only Rs.80 lakh but not Rs.1 Cr. At the time of causality, the market value was Rs.80 lakh but not Rs.1 Cr. Therefore, what will happen is sometime you feel short of amount to replace asset with a new one. Because insurance companies considered depreciated value and paid you the amount. However, when try to replace the same asset with a new one, and then you find it difficult to have at the same amount.

  1. Reinstatement value.

In this method, if policy arrives to claim, then the insurance company will replace with a new one, but subject to maximum ceiling of sum insured. Insurance companies will not deduct any depreciation on the asset. Do remember that such method of arriving at value will apply only to fixed assets like property but not to assets like stocks.

Usually in India, insurance companies cover the built up area. Suppose you have 1,000 sq.ft. Built up area and current cost to build is Rs.800 then the valuation considered as Rs.8, 00,000.

On the other hand, valuables like jewelleries are usually assessed based on the current market value. So in case of loss they would pay you value of purchasing at current cost deducting the depreciation for the usage.

Below few unique features, which make you more familiar with house/property insurance buying.

  • Before proceeding to buy insurance, first understand the exclusions also. This makes clear about what is covered and what is not.
  • If your property is valued at higher insurance, then it does not mean that you will get the full sum insured claim amount.
  • You can cover household items like laptop, personal computer, Jewellery or any other valuables. However, it is strictly based on valuations.
  • If you have multiple insurance on a single asset, then in case of claim the damage will be shared by all insurance companies based on the proportion of the sum insured.
  • Nowadays you can buy it online.
  • Premiums are not that costly and within affordable range.
  • You can cover self-occupied and rent house also.
  • If you adopted some safety instruments to your property like smoke and burglar alarms, then you will get a discount in premium.
  • Few Insurance companies offer third party liability, hospital confinement allowance, or accident insurance too.
  • You can either choose to cover only building or building with content.

Few of Insurance products available are as below.

HDFC ERGO Home Insurance, ICICI’s Home Insurance Policy, Bajaj Allianz House Holders Package Policy, Oriental Insurance Sweet Home Insurance Policy, Oriental Insurance House Holder  Insurance Policy.

How to claim?

  • First importance is to take steps to control the damage.
  • In case of fire, inform the fire brigade immediately.
  • It there is theft, then inform the police.
  • Inform the insurance company over phone or in writing.
  • Co-operate with the surveyor in understanding the value of lost items along with providing necessary proof.

How to protect your assets like property/jewellery or other valuable household contents?

  • Do not open the door to any unknown person.
  • Ask for identity card if someone claims to be a sales person or repair person.
  • Make sure to lock the windows whenever you are leaving.
  • In case of sliding doors, place solid bars for safety.
  • If possible, have a grilled gate to the front gate.
  • Keep jewellery or cash in bank lockers (But these days such safety measure is also vulnerable to risk).
  • Avoid discussing about your holiday plans with neighbours or anyone.
  • Install burglar alarm and fire alarms.
  • Usually uncollected letters or newspapers are signals that no one is there in house or building. So if you are going for vacation, then request your neighbours to collect them.

Hope these safety measures along with house/property insurance will make you to sleep calmly.

Image courtesy of [Stuart Miles] at FreeDigitalPhotos.net

14 Comments

  1. Hi Basu,

    Could you also share your knowledge on Home Loan Insurance or Home loan Mortgage insurance. Agreed term plans and home insurance are cheaper and cover the liability. But a person with home loan will stay have to pay the EMI to the bank if the house is damaged due to natural calamities (as home insurance pays the money only to reconstruct the damaged house). Also in case of the term plan, if the life insurance claim amount is paid to the bank, the deceased family is left with nothing, except the home. They again have to pay the EMI on the home loan.

    Also there are some home loan insurance products are there for long term and single premium. So please share with your usual expertise on the subject.

    Please also bring in a comparison on which is better when we buy it with a home loan (usually highly costly) or buy separately. Also my personal request or you can say audience request, please list out some of the good ones now in the market.

    Reply
    • Ashok-Thanks for your views. Let me write a separate post on this.

      Reply
  2. Thank You Sir.

    Reply
  3. Hi Sir,

    I have a 3 floor building. 1st two floors we have four 1bhk rented and 3rd floor is a single 2bhk which is self occupied. We have parking in Stilt. The property is under loan of 65 lakhs.

    Please suggest a suitable home insurance product.

    Reply
    • Ashok-I can’t name any particular. But by referring the above process, you can easily shortlist.

      Reply
  4. Sir, can iinsure a house and afterwards continue the construction without informing the insurance company

    Reply
    • Imli-You can insurance but changes to insured property must be informed to insurance company. Otherwise, in future your claim may get rejected.

      Reply
  5. Hi Basu,

    I am fan of your articles. its nice read . I have taken home insurance from Home Suraksha plus from HDFC ERGO General insurance 07-14.For that have paid 62049rs.My Loan amount is 2200000.it will cover
    1)Fire and allied perils.Earthquake and terrorism ( A) 2262049,(B) contents 565512rs,
    2)burglary,housebreakig,theft(A)-565512 rs
    3)major medical illness and procedure -2262049rs
    4)personal accident 2262049rs
    5)Loss of Job(No of EMIs ) -3

    My queries:

    1)Is it worth able?
    2)Shall I cancel 3rd one.
    3)i have seen online reviews about claim 5th one insurance people asking termination letter.No organisation will provide termination letter.Same thing i have also faced
    In that case 5th one also i want to cancel.Is that possible ?
    4)If cancel total policy how much amount refunded.

    Please advice me one those.

    Reply
    • Chennaiah-In my view it is worth to have such insurance. Please retain all features. Because we don’t know in what way perils may appear in front of us. In case of job loss, at least your company communicate you about this. Such communication is enough to prove that you lost the job. Regarding cancellation, I am not sure how much they refund. Please contact HDFC.

      Reply
  6. My Question is specific about the Home/Property Insurance policy which is under construction stage and expected to complete in next 2 years ( Registered Agreement possession commitment is of Dec-2016 by developer).

    Now, its an under construction building of 22 levels where a Home loan has been in force for all the construction linked payments to developer thru SBI since last 7-8months and developer claims to have completed 80% of work as per the construction plan mentioned in the agreement. Already assignment of a SBI life insurance term policy has been made by the First borrower; since the property will be co-owned by a married couple.

    Now, point is, SBI is asking to take a Home protection insurance policy, immediately.
    Q1- Whether such policy is mandatory?
    Q2- Since the property is still under construction and 2 more years to complete, there is no legal possession of a property and not ready so how can any insurance company cover it for an individual?
    Q3- Since builder/developer is putting such a big investment is builder responsible for any earthquake or similar damage insurance to the lender or buyer?
    Q5- SBI had issued unilaterally a deducted for a property insurance policy without any info/consent, form filling from us, but later withdrawn on a complaint by reversing the deduction, debiting loan account for the Property insurance charges. How an insurance company can issue a policy without buyers application? ( We have not given any forms signed during loan sanction/processing). Also how can SBI pay on our behalf to SBI insurance company without our consent from a loan account which is meant for a Home loan purpose? If we/I refuse to buy any such policy till I get the peaceful possession from the developer, can SBI hold further disbursement to the developer on his demand letters thru borrowers/us?
    Because if builder doesnot receive payment to his demand within 15 days developer will charge for a penalty @ 24%.

    I hope my query is clear and descriptive to reply from experts.

    Reply
    • Kint-It is not mandatory but one of the necessity to be free from worry. No insurance company will cover the property until it is fully ready to occupy. Regarding pre construction risk, discuss the same with your builder. What SBI did is illegal and they can’t hold the further disbursement.

      Reply
  7. Hi basu thank u. It is very informative. I would like to know about critical illness cover. I have term insurance for 1cr & family floater health insurance for 5L. My doubt is should I need critical illness cover? If yes for how much? & which company is good. Pl educate us about this product.

    Reply
    • Sudheer-Hard part of critical illness insurance is, you need it. But how much is depend on your pocket. Also there is no such hard rule to judge the amount of insurance and which is best. So search for few and if it suites to your budget with comfort of company then go ahead.

      Reply
      • Thanks basu.

        Reply

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