The concept of buy a property insurance is still for people in India, compared to many other countries. Studies suggest that in the past 10 years, the non-life insurance industry has 'moved towards a higher annual growth trajectory of 15%. On a contrary note, just 1% of homes in India are covered under insurance! It is important to note today if the growth is observed more in the auto insurance sector, it is mainly because having a motor insurance is mandatory worldwide. Also, awareness in other non-life insurance segments like travel insurance, health insurance are more when compared to house insurance. So, what is home insurance?
Like any other insurance, house insurance is an agreement between two parties – a house owner and an insurance company- wherein, the insured promises to pay a fixed premium to cover his property against unforeseen losses, if any. Under such policies, if the insured property suffers any loss because of natural or man-made disasters, the insurance company is bound to make good of the losses incurred. In either case, the maximum amount the insurance company pays does not exceeds the insured amount.
How is the insured amount and premium calculated?
In case of property insurance, the sum insured and the premium are calculated on basis of the property area, rate of construction (per square feet) and the location of the property. The insured sum of two houses of same size can be different. The logic is similar to what goes in buying a house. For instance, House A is 500 sq ft and constructed in a prime location in the heart of Mumbai will easily cost you around Rs 5-10 crore, while House B also 500 sq ft built in the outskirts of the Metro shall be rated around Rs 30-60 lakh. Similarly, factors like location and construction cost play equally important role in deciding your house's insurance amount.
Also, it is important to note that the property is insured for the value that it would require to rebuilt the it and not for the its market value. Whereas, the contents in the house are insured for 'market value minus the deprecation'.
Therefore, while buying a house insurance, keep a check of the following factors:
a) Coverage: While buying a property insurance, you will come across options of insuring contents in the house, structure of the house or both. Depending on which plan you take, your premium and security of your property will differ.
If the house you are staying in is on rent, then it would be more sensible to insure just the contents of the house.
b) Rate of construction: Insurance companies generally have fixed rate of construction for different localities. Nevertheless, if your property was built using a higher or lower standard material then your policy's rate of construction may vary accordingly.
c) What is covered and what is not: Most of the insurance companies offer coverage against similar factors. However, what they do not cover may differ in each case. Do not forget to read policy wording about things included and excluded.
d) Clarity on claim process a must: As a thumb rule, get a clear understanding of the clauses included in the claim process. Make a note of all required documents, proofs to get your claim.
These are just few basic factors that can make the process of buying a house insurance policy easy for you. However, depending on each individual's needs and preferences, every insurance policy is different in its own way. Therefore, it becomes even more necessary to do your personal research before buying the right policy to meet your needs.