Home Insurance Lessons In Age Of Global Warming

The recent incident pertaining to Joshimath, where several homes are damaged due to subsidence, is a glaring example of how home insurance is such a necessity for all Indian customers. A home continues to be the most prized possession of every individual in India. 

Most buyers avail of home loans while buying a home property and in India, around 80 per cent to 90 per cent of the homes sold are availed on home loans. 

When we buy an expensive home and spend lakhs of rupees in furnishing it further with expensive interiors and costlier furniture, we forget to insure the prized possession of the house against the perils it is primarily exposed to. 

Fifteen years ago, global warming was only a thought, but now it has already become a harsh reality, due to which we are seeing floods and extreme weather conditions everywhere. In India, extreme weather events and floods have frequently occurred in the last seven years. 

In fact, we come across news about extreme weather events and floods happening throughout major cities and towns in India. 

Hence, in today’s world, it is a reality that your home needs protection with an adequate home insurance policy so that in case of extreme weather events, floods, earthquakes and subsidence and landslide etc., your home is protected on all fronts. 

In India, people typically make the mistake of assuming the sum insured in home insurance to be the same as the property's value, including land value. As against this understanding, insurance companies usually cover only the cost of reconstruction of property to make good the loss and keep the insured person in the same position he was occupying immediately before the loss.  

For example, if a flat/home property with a carpet area of 2,000 square feet with a market value of Rs one crore needs to be insured, the sum insured for insuring the same is arrived at as a multiple of the carpet area X cost of construction. 

In the same example, if the cost of construction (COC) is estimated to be Rs 2,000/- per square foot, then the sum insured to be proposed shall be Rs 40 lakh (arrived at as a multiple of the carpet area of 2,000 sq ft with COC of Rs 2,000/- per sq ft). It is enough if you pay the premium for the arrived sum insured of Rs.40 lakhs and not for the market value of Rs one crore, which includes the value of the land, which is usually not covered. 

This is one of the most mis-selling aspects in home insurance, whereby the customer is of the opinion that in the event of a loss or damage, he will be entitled to an amount of Rs one crore, whereas in actuality, his entitlement is only Rs 40 lakh as arrived at above. 

In place of the standard annual tenure policy, a home insurance policy can be availed for a long-term tenure of 10 to 20 years. Since no person can be sure of how long he will be holding the property, it is advisable to avail of the policy for a minimum tenure of five years. 

Usually, for long-term policies, insurance companies offer a long-term discount which the customer can avail of. Alternatively, in place of the long-term discount, customers can also opt for escalation benefit, whereby during the tenure of the policy, at the end of every year, the sum insured of the property gets automatically increased by 10 per cent, without any additional premium payment to take care of inflation in the cost of construction. 

In addition to the primary benefit of covering the home property, the home insurance product also offers peripheral benefits like loss of rent and additional expenses on rent benefits. Through the loss of rent benefit, if the property has been let out, we will pay you the rent amount lost as a result of loss due to an insured event. 

Similarly, if you are a tenant paying rent for premises and due to operation of an insured peril, the building cannot be occupied, and if you are required to pay a higher rent for alternative premises, we will pay the difference between the higher rent amount for the alternative accommodation chosen by you that needs to be paid and the actual rent that you are currently paying. 

Further, we also need to remember that in addition to covering the home structure, the contents kept in your home, viz. contents and appliances are equally prone to the risks specified above, viz. loss/damage due to fire, lightning, earthquake, storm, cyclone etc., perils, subsidence, landslide, rockslide etc., resulting in a deep dent in your pockets. 

One of the advantages of home insurance is that it offers a convenient way of covering all your valuable assets in addition to the building structure- contents like clothing, all types of furniture, curtains, carpet, utensils, crockery etc. and appliances like refrigerator, washing machine, geyser, microwave oven, air conditioners, personal computers, television set etc. 

In fact, in India, the entire process of buying home insurance, including building and household articles, has been quite simplified and the entire process can be completed in a quick manner.