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Yogi Zone

Useful articles for your finance management by our team of experts

secure your home insurance policies that you should look at

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Buying a home is a big investment decision and also has an impact on cash flows. The intent behind building a home is creating an asset for present and future generations. Most of us, will take up a home loan to fund the purchase and while doing this we also create a liability in terms of the loan re-payments. Unless the last paisa is repaid, it remains a liability.

It is therefore important that along with creating that asset, we insure our family and ourselves against the impending liability. This is where insurance for home loans and homes comes into the picture.

Insurance for Home Buyers

In case of many home loan companies, this is a mandatory insurance policy. This is a credit shield policy, which insures the life of the borrower for the tenure of the loan. It is a term policy which is for the term of the loan and matching the tenure of payments.

For e.g. if you have purchased a home loan worth Rs. 50 lakhs for 20 years, then this credit shield policy will insure your life for Rs. 50 lakhs. Should anything happen to you say 5 years from now, the entire outstanding of your loan will be paid off by this policy. This will ensure that the House remains an asset for your family.

Insurance for your Home

A lot of effort goes into setting up that new home and effort begets investments. But a freak of nature can destroy what was built with so much care. This insurance policy protects your home and its contents. This is popularly known as Householder’s policy.

The policy has two components to it and you can choose whether you want to go in for both or any one. One part insures the building viz. the brick and mortar portion of your home, the other part insures the contents viz expensive art work, jewellery etc.

Home Building Insurance

This insurance policy provides complete coverage against damage to the building or the structure in the event of its destruction subject to a maximum of the Sun Insured. Home Building Insurance covers Fire and Allied perils including Earthquake.

Fire and Allied Perils include

  • Fire

  • Lightning

  • Explosion/Implosion

  • Aircraft Damage

  • Riot, Strike and Malicious Damage

  • Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation

  • Impact Damage

  • Subsidence and Landslide including Rockslide

  • Bursting and/or Overflowing of Water Tanks, Apparatus and Pipes

  • Missile Testing Operations

  • Leakage from Automatic Sprinkler Installations

  • Bush Fire (excluding Loss or Destruction Caused by Forest Fire

Some insurance companies also offer you an extra benefit of covering expenses on Architect’s, Surveyor’s and Consulting Engineer’s fees upto a certain percentage (approx. 2-3%) of the claim amount and expenses for debris removals upto a certain percentage (about 1%) of the claim amount. Both of these are included in the premium charged and provided at no additional cost.

 

Real estate also means that there is periodic escalation in the costs. The insurance companies also offer an escalation benefit of around 10% in the sum insured. For example, if the original Sum Insured is Rs. 10 lakhs, in the second year the Sum Insured will be Rs. 11 lakhs and in the third year the Sum Insured will be Rs. 12 lakhs. This escalation comes to you at no additional cost. The biggest advantage of this Escalation benefit is that, since the Sum Insured gets automatically increased by 10% of the original Sum Insured every year, it matches the expected cost of Reconstruction for subsequent years.

 

Home Contents Insurance

This insures the contents, expensive items, jewellery, appliances from Fire and Allied perils, Burglary and Machinery breakdown wherever applicable.

You have to originally declare the value of the items that you intend to cover and based on this, the insurance value is decided.

Typical Exclusions

The typical exclusions for the policy include.

  •         

    Damage or destruction to the building due to perils like war, ionising radiations, contamination by radioactivity from nuclear fuel or waste, pollution or contamination.

  •         

    Damage or destruction to building or compound wall made of Kutcha/ Temporary Materials.

  •         

    Damage or Destruction to the building due to an act of Terrorism

  •         

    Loss or damage due to war and allied perils, nuclear and pollution related perils

  •         

    Depreciation, wear and tear and consequential loss of any kind

  •         

    Scratching, Cracking, accidental breakage

  •         

    Item more than 10 years old are excluded under Electrical & Mechanical breakdown cover

These are single premium policies, and will cost you around Rs. 10,000 for a Rs. 10 Lakh cover and an additional cover of Rs 10 lakhs for Home contents will cost about Rs. 2500.

Almost all General Insurance companies have this product readily available and you can also

purchase it online on your own. However the important requirement is to know your current market valuation of you property to insure your property adequately.

 

About the Author:

Daisy Fernandes is a personal finance enthusiast who is also pursuing her Certification in Financial Planning

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