Tag: home insurance

Why home insurance is your shield against nature’s fury

Personal Finance

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Until a few years back, home insurance would have primarily been associated with protection from fire, burglars, or earthquakes. But after witnessing nature’s fury unfurl with increasing frequency in coastal and other rain prone areas in the country, incessant rains, flooding and storms seem to be a big risk.

If the climate change predictions hold true, the risk should manifest with an even more increasing frequency in coming generations. General insurers faced ₹4,800 crore claims, mainly from motor and home insurance, from 2015 floods in Tamil Nadu. The claims from recent floods in late-2021 are yet to surface. Similarly, Uttarakhand faced a similar wrath in 2013 and again in 2021. Home insurance may become a necessary purchase for most, in this scenario.

Inclusions and exclusions

Home insurance broadly covers three different assets – building, content and a combination of the two, which appeals to either home-owners or tenants. Content generally refers to furniture and other immovables like television, ACs and even desktop computers. It is important to note that portable electronics and valuables do not automatically fall in the purview of content. Building or structure refers to the physical units and accounts for the largest part of the sum insured. Cover for content is either a percentage of the building cover or provided on disclosure of contents.

Most home-insurance policies offer protection from risks which can be grouped into, natural and man-made. Natural risks arising from earthquakes, fire, floods-storms & inundation, and landslides are covered for both building and contents. Man-made disasters, including riots and malicious damage and terrorist activities as stated under India penal code are covered. The general exclusions, across policies cover the obvious conditions of self-damage, unmaintained properties, pre-existing damages, loss due to wear and tear and damages to property on order from government authority or court. The not so-obvious exclusions that one has to take note of include seepage losses (from water seepage), breakdown of electrical items, war, rodent damage and equipment related to home business. Cash stored at home is also excluded. Jewellery and portables are covered as an add-on or as a nominal cover.

Bharat Griha Raksha a standardized home insurance was introduced by IRDAI in April-2021 which all general insurers should offer. The policy differs from other customized products in two main aspects. The cover for content is provided for up to 20 per cent of the sum insured without the need for disclosure, under a comprehensive cover (building and content). The policy also disallows proportional claim servicing, wherein claims disbursed to claimed amount will be in the same ratio as sum insured to property value. Cover for jewellery and other valuables and also content cover in excess of 20 per cent is available on disclosure of the asset as well as its value. This cover will come for an additional premium.

Product pricing

For a building insurance cover of ₹1 crore and content cover of ₹5 lakh (which excludes jewellery and portable electronics) annual premiums would range from ₹4,000-5,000 per annum (for pincode in Chennai) compared to Bharat Griha Raksha’s price range of ₹2,000-₹5,000. Iffco-Tokio’s comprehensive plan for the same parameters would charge ₹4,062 per annum. Here, jewellery up to ₹50,000 is only covered, for a nominal additional cost while portable electronics up to ₹50,000 would add ₹330 to the annual premium. HDFC Ergo’s comprehensive cover has a premium of ₹4,883 per annum but also includes alternative accommodation and other emergency related benefits. The terms include a deduction of ₹5,000 for every registered claim. Electronics cover, limited to ₹1.5 lakh costs ₹2,250 extra and a ₹1 lakh jewellery cover costs ₹800 additionally per year. Go Digit General insurance offers Jewellery cover of up to 20 per cent of content cover or ₹5 lakh whichever is lower, for an annual premium of ₹4,119 ( for the same building cover of ₹1 crore and with content cover pre-determined at ₹10 lakh).

Pricing in Bharat Griha Raksha (see table) varies on differences in services, pricing ability, claims processing and settlement ability even as the basic structure is common across companies.

Other factors

In case of burglary, claims have to registered as soon as possible for most policies (7 days for Bharat Griha Raksha). Jewelry insurance may be best served by a specific insurance as Home insurance may be inadequate to cover valuables above ₹2 lakh, stored at home. Premiums are highly dependent on pincodes, so even across the same city premium rates can vary significantly Some policies also reject insurance for homes which have faced a flood in the last five years. The premiums will also be lower if security features like closed circuit cameras and 24/7 security personnel are available.

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How you can make your home climate-proof

Personal Finance

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The effects of climate change are strongly and clearly upon us — severe rains, landslides, hurricanes to scorching heat.

The recent report by the Intergovernmental Panel on Climate Change (IPCC) notes that South Asia is very vulnerable and India may suffer more frequent and intense heat waves, extreme rainfall events,erratic monsoons and cyclonic activity in the coming decades.

As homes offer protection against the elements, there is also a need to have a shift in how we approach residential property. Home sales and prices are not yet impacted by climate change considerations, except in a few coastal regions.

Rising risks

Data from the IPCC show three scenarios of mean temperature rise in South Asia – 1.9º C, 2.9º C and 5.1º C. Besides higher average, there will also be more days of extreme heat — over 40º C temperature. The best-case scenario projected is a 50 per cent increase, from about 40 days in a year now, and the worst case is up to three months of extreme heat.

This change will push up cooling costs for homes. In fact, analysis by the International Energy Agency shows that the share of electricity demand by homes, mainly for cooling, will nearly triple by 2030 globally.

The other hazard is cyclonic storms. Analysis shows that the Arabian Sea is likely to be most affected and in the past decade the cyclonic systems in the region already increased from two to three. The storm intensity, too, is expected to increase.

Floods are an existing danger and data from the Geological Survey of India show that 12.5 per cent of the country are major flood-prone areas. Coastal regions – nearly 7,000 km long – face the risk of water inundation from cyclonic storms. Rising sea levels also pose a threat, though the immediate effect may be limited to a few low-lying places.

Flash floods from glacier run-offs will be a peril for those in the Himalayan region.

Unpredictable monsoon, leading to not just high precipitation, but also water-shortage is also another factor to consider for some regions.

How to manage

While the prediction is dire, there are at least three ways in which you can tackle these risks from a housing perspective. The first line of defence is to consider locations that are relatively safer.

For example, you can refer to the vulnerability atlas of India (https://vai.bmtpc.org/) published by the Building Materials and Technology Promotion Council . However, it is likely that you may have limited options in picking a location, due to career or other considerations.

You can still find places in the city that are not low-lying, have better water drainage systems and choose homes that are built on an elevation. Be sure to inspect the area during the monsoon to see how it fares.

Even with that, you must buy insurance to cover for any damages.

Your losses can run high — the 2015 Chennai floods led to total claims of about ₹4,800-5,000 crore and the Uttarakhand flash floods saw insurance companies paying out claims amounting to ₹1,500 crore.

Flood insurance is a subpart of regular home insurance, and if there is potential for flood, you must opt for it. Make sure the insurance cover is comprehensive and includes multiple calamities. In general, there are two types of cover – structural and content.

While content plan typically covers damages to possessions due to fire and flood, structural coverage also includes damage to structure due to storm, lightning and others.

Given that the losses may be high, do not skimp on the insured amount.

Also, make it a point to check the amount during renewal, as it may alter over the years, based on the policy. For instance, the plan may be based either on the reinstatement value or on the market value of the property to be insured.

The former considers the cost of re-constructing the structure after damage while the later deducts depreciation, based on the usage of the building.

Four, pay attention to the thermal comfort of the home. This includes analysing the layout of the house, green cover and choice of building materials used.

These factors can together make it cooler by a few degrees. You can also look at solar and wind power solutions, to reduce your power bill.

The author is an independent financial consultant

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Smart tips for buying a home insurance policy

Personal Finance

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Many citizens are impacted by some or the other natural disaster every year. The destruction caused by the recent cyclone Tauktae serves as a grim reminder. A home insurance policy comes in handy to financially shield you from such losses. Home insurance, in addition to providing coverage against fire, also covers your home for natural calamities such as floods, cyclones, hurricanes, earthquakes, hailstorms, lighting, and mudslides, and rockslides. Here is a guide to understand the nuances of this financial safety tool.

Valuation of property

Home insurance provides the policyholder, the flexibility to choose your preferred type of home insurance, based on how you want the property to be valued. The valuation can be based on what is called ‘Agreed’ value , ‘Reinstatement’ value or on an‘Indemnity’ basis. The claim amount is determined based on the valuation of the property.

For ‘Agreed value basis’, the loss is settled by the insurer on the value of the property or content agreed to by the insured at the time of purchasing the policy. In ‘Reinstatement basis’, the insurer will settle the loss by replacing the damaged property or item with a new one and under the ‘Indemnity basis’, the insured will be compensated as per market value of the house/ item damaged after deduction for wear and tear.

Valuing contents

A comprehensive home insurance can offer protection against damage to your assets, both fixed and portable, due to any accident, theft or disaster. Contents within the house such as electronic items, home appliances, portable equipment including cell phone, laptop, television and jewellery can be quite expensive too.

A comprehensive home insurance policy with global coverage, offers 24*7 protection for your assets whether they’re kept at home, locker or carried on person across the globe at minimal premiums.

You can customise your policy with add-on covers such as loss of rent, temporary resettlement cover, public liability cover, dog insurance cover, ATM withdrawal cover, lost wallet cover, and key and lock replacement cover which can provide wider protection during disasters. Home insurance is not just limited to those who have home ownership. It can also be purchased by tenants living in rented properties for their contents.. Huge EMIs are paid every month for homes without realising that the premium towards securing a house could be as low as ₹5 per day.

The author is MD & CEO, Bajaj Allianz General Insurance

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