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Here's why home insurance is a must for everyone

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Here's why home insurance is a must for everyone

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As per a survey, it is estimated that only 30 percent of people in India have home insurance however 75 percent knew that it was important to take home insurance.

Here's why home insurance is a must for everyone
Last month an apartment in our parents’ society caught fire. The building had to be evacuated, nobody got hurt but the apartment that caught fire is completely destroyed inside.
The reason for the fire was faulty wiring in the apartments. For the longest time, my father was reluctant to buy his home owner’s insurance and I could not convince him otherwise. In fact, it is just not him, I found many people of that generation reluctant to buy any insurance beyond life insurance.
Their lack of home insurance used to make me very uncomfortable. Since only a few years back they moved into their dream home and are now enjoying their sunset years. It used to bother me to imagine how a single adverse event can put them in an avoidable financial difficulty. So I ended up buying their home insurance policy and since then every year I renew their policy along with my insurance for the apartment I own.
Coincidentally this year I had renewed their home insurance just 1 month prior to this fire incident. My father had wanted me to stop wasting money on home insurance since they tried filing a claim for minor water damage in the kitchen and the company did not pay.
In my mother’s words “The builder is very good and he has built it to withstand earthquakes so no need for any insurance”. But once this fire incident made it to the TV news channels and newspapers, all our relatives/friends started calling our parents to make sure they are ok. Now my father no longer considers it is a waste as they’ve been jolted from their complacence. They now agree that it is useful. So starting this year my parents will pay for their own home insurance.
Almost all of us take life insurance and since motor vehicle insurance is mandatory we take that as well. Health Insurance has become mainstream now. So we are left with one major insurance which is not commonly taken – Home Insurance.
As per a survey, it is estimated that only 30 percent of people in India have home insurance however 75 percent knew that it was important to take home insurance. In spite of knowing it is important most people did not insure their homes. This seems very absurd considering the love we have for buying real estate.
Most Indians, like my parents, are real estate rich and cash poor. When you have so much at stake what stops one from insuring their homes? It costs only approximately Rs 2500 per year to insure a Rs 50 lakh apartment and Rs 5,000 per year to insure a Rs 1 crore apartment.
Benefits Of Buying Home Insurance
Natural calamities have increased manyfold in the last 10 years all over the world. In India, floods in Chennai and Kerala are just some recent unfortunate incidents where people lost their homes or incurred heavy damages.
Home insurance:
  1. Covers your house and its contents against events beyond your control such as fire, floods, lighting strikes, windstorms, hail and even theft.
  2. You have something to fall back on in unforeseen circumstances: In case of damage, you get money to repair or rebuild a damaged home so you can continue to live there or move somewhere else instead of rebuilding.
  3. Protects your lifestyle: if you take proper and prior insurance, it will enable you to smoothly get back into your earlier lifestyle using compensation from insurance companies.
  4. Where Does Insurance Fit In Early Retirement Plan?
    Well, Personal finance consists of three different aspects:
    • Generating Wealth through a job or business.
    • Accumulating Wealth through savings and making the right investments,
    • Protecting Wealth – Protecting what you have by insuring it, so that all of a sudden you do not lose what you have accumulated over a period of time.
    • Insuring your house comes under protecting your wealth.
      Types of Home Insurance Available In India
      For the past three years, we were taking re-construction home insurance for our apartment. The major issue with this insurance is it only insures the value equal to the construction cost of a house.
      Knowing that three years back, I was a bit shocked because the construction cost was only one-third of my apartment’s market value. I wondered what I will do if something happens to my apartment. I would be left with no house and with reimbursement of just one-third of its actual value. That is not enough to buy a new apartment.
      The other problem with re-construction option for apartments is that all the owners have to agree to demolish the entire building complex and rebuild it from scratch. But if only your apartment was gutted like in my parents’ building example, you would be out of luck even if you have insurance.
      Re-construction option is better suited for independent houses where one owns the land under the house and there is only one house built on top of that land. It is not suited for apartments.
      Three years back there was no other option because insurance companies did not cover the market value of your apartment back then. But this year I discovered agreed value insurance.
      If you live in an apartment complex you can opt for agreed-value option which insures your apartment at the agreed market value. It has to be a reasonable value, that in case of claim should corroborate with the then going market rate.
      One caveat is that if you want the full insured amount you have to hand over your apartment to the insurer. With the amount you receive in return, you can then buy an apartment elsewhere. If you only want to do repairs and live in the same apartment then the claim will be paid on reconstruction cost basis.
      Other Add-on Covers To Home Insurance
      Home insurance primarily covers the structure of the building. There are other add-on covers that protect your high-value contents from damage and burglary, temporary rental cover, water damage cover etc. We recommend you first insure the structure and choose add-ons only if you absolutely require it.
      6-Steps To Buy Home Insurance
      • Take out a few hours over a weekend to research – this is usually a one time exercise. In future you just need to renew your insurance annually.
      • Establish the value of your house and its contents – put reasonable value because your premium is derived from the value you are insuring. At the time of filing claim insurance companies can dispute if they find you had inflated the value of your house or its contents.
      • Compare home insurance from top insurers on the following basis:
      • Check their premiums and coverage.
        Claims settlement ratio.
        Company’s reputation.
      • Most Importantly read the terms and conditions of your insurance: To avoid any misunderstanding on your part about the policy coverage do read and clarify terms and conditions (T&C) of the policy.
      • Understand the policy Exclusion: This is very crucial. Understand very clearly what is not covered under your home insurance so if needed you can buy an add-on.
      • Go online and buy (saves you commission): In case of doubt call customer support centre for help. Sometimes it is better to call the local office number of the insurer as they may be better-informed than customer-service reperesentatives. That was my experience.
      • Conclusion
        Home Insurance is a very useful product about which there is very little awareness. There is a lot of conflicting information on the Internet. Sometimes even customer-service reps of the insurance companies themselves give out wrong information. We hope other financial journalists launch an education campaign as they did for mutual funds and health insurance to clear all doubts and gotcha clauses. We’ve done our small bit.
        Home insurance helps an individual to protect their house from risks beyond their control by compensating some amount for the losses. Risks can be either natural or also man-made. Anyone who owns a house or rents a house must take suitable insurance to protect their wealth and peace-of-mind.
        Sugandha and Naren live in Goa. This article was first published on SavingHabit.com and can be accessed here.
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