Busy renovating your home ahead of Diwali? Why don’t you get papers ready for home insurance too? You love your home — from the designer furniture in the living room, to the art work on your bedroom wall and your son’s expensive electronics, don’t you?

But it takes just a spark from a Diwali cracker or an electric short-circuit to damage these prized possessions irreparably. Sabh shubh hoga, don’t worry. But it is not a bad idea to spend a few thousand rupees to buy an insurance cover for the home that is dear to you. Home insurance policies cover both the structure and contents, but you can also get either of the two covered.

People are aware about home insurance, but not many consider it essential. They learn its importance only the hard way. Here are some real life examples.

Money to re-build the house
The harrowing experience that Sonal Birla and her family underwent a year ago made them rue not taking home insurance. Sonal had stepped out of the home to visit the post office, when her neighbour called to tell her that fumes were seen coming out of her window. But by the time she rushed back, and men from the fire station came, it was all over. “From clothes to jewels and other valuables — everything was burnt. The fire started with a short-circuit in the air-conditioner,” says Sonal.

The family moved to a rented apartment in the same building after the accident. It took two months for them to renew the apartment.

If the Birlas had taken home insurance, the insurer could have paid for the loss. But weren’t they aware of home insurance? “We knew that there was an option to get the home insured against disasters, but we didn’t think we would need it some day,” laments Sonal.

If you stay in your own house, you can buy insurance to cover the structure of your house. If there is any damage to the building — due to fire, flood, earthquake or any other peril — you will be paid the sum insured.

Structures can be insured at ‘re-instatement cost’ or at indemnity value. In re-instatement value-based cover, the property will be covered for the cost of re-building the house — the built-up area multiplied by the cost of construction per square foot.

In indemnity value-based cover, the insurer will also take into account the age of the building. The property will be valued at re-construction cost less depreciation. It is always better to go with re-instatement covers, though they come for a tad higher premium.

If you own an apartment, you could consider Bajaj Allianz General Insurance’s policy as it offers the option to cover the apartment on ‘agreed value’ basis. Here, the sum insured will also take into account the value of the land, agreed at the time of signing the policy. This can be of help when there is total loss, where you want to abandon the property and move to a nearby location and buy a new apartment. Some insurers, such as Bajaj Allianz, ICICI Lombard and Tata AIG, also pay the rent for alternate accommodation after a disaster.

There are other add-on features, such as public liability cover, pet insurance cover and employee’s (for a maid who might get injured) compensation cover with some insurers, for an extra cost.

Asif*, a resident of Rajbagh in Srinagar, bought a home insurance policy three years after moving into his newly built house; that too very reluctantly.

For a ₹50-lakh cover for the structure and ₹10 lakh cover for contents on indemnity basis (items valued at replacement cost less depreciation), he paid a premium of ₹9,000.

Last year, during the floods in Jammu & Kashmir, as the water level rose to 16-17 feet, Asif’s home and all the contents in it were destroyed. However, Asif could make a claim against the home insurance policy.

After assessing the property, the insurance company found that there was partial loss to the structure and paid him ₹23.12 lakh after deducting depreciation at 2.5 per cent per annum for three years.

Contents worth ₹6 lakh were also damaged in the flood and Asif was paid ₹5.4 lakh for it after charging for depreciation.

In situations akin to what Sonal or Asif faced where all the original purchase documents of the items are destroyed, the insurance company’s assessing officer is deployed to conduct a survey and arrive at the value of loss. However, in case of total loss, the full sum insured is given.

Covers burglary and theft
Most insurers value articles based on their market value, i.e., the cost of buying the same item of the same age from the market. Suppose, there was damage to a washing machine and it has to be replaced, the insurer will assess the age of the machine. If it is three years old, the market value of a three-year old washing machine will be paid to the policyholder. ICICI Lombard and Tata AIG cover items based on market value. With Bajaj Allianz General, if the article is less than five years old, the policyholder has the option to go for a plan where items of age less than five years are replaced with a new one, when destroyed.

Home insurance policies cover losses arising from theft or burglary too, thus protecting valuables, including jewellery. Janaki Ganapathy* from Chennai, a 63-year old homemaker, was a victim of chain-snatching a year ago. “I go for a walk in the park near my home every morning. That day, it would have been around quarter past six and I had just stepped out of the park after finishing my walk. Suddenly, I heard a bike come racing, from behind me. To allow it to pass, I climbed onto the platform nearby when someone pulled my chain from behind with force. I fell to the ground and screamed for help. But before anyone could come, the fellow who snatched my chain sped away on the bike,” grieves Janaki. The chain weighed five sovereigns. She registered a complaint with the local police station, but hasn’t got back her chain yet. Janaki didn’t have home insurance, else she could have made a claim for the lost chain, based on the FIR.

It is best to cover even the valuables you keep in a bank locker through home insurance. Do note that banks are not bound to compensate for the loss of gold or other valuables you keep in a bank locker. When insuring the contents of your home, you may be required to attach a list of the items; for jewellery, a valuation report may also be needed.

Also, do remember to take an ‘all-risk’ cover when you buy home insurance, to protect against all kinds of hazards. Otherwise, the insurer might cover only those perils mentioned in the policy. Theft of jewellery or any electronic gadget may not be compensated if only burglary is mentioned as a peril.

* names changed on request

Rajalakshmi Nirmal
This article was published on November 1, 2015, in BusinessLine (The Hindu)