Home Insurance or House Holder’s Insurance Policy is an insurance policy that you can purchase to insure your home and/or it’s contents from any unforeseen risks that may come in the shape of natural calamities, fire, burglary etc…This protection ensures peace of mind to the occupant of the home irrespective of whether they are the home owners or tenants. Any of the above mentioned eventualities can cause irreparable financial loss/damage to the property and its owner who may have used all their hard earned savings to build/purchase their dream home. Home Insurance in India is currently estimated to be at
just around 0.7% penetration, which is amongst the lowest in the world. In a recent survey conducted among home owners and tenants across urban cities in India, it threw up the following possible losses that most people believe can impact their homes.
The frequency of natural disasters across many parts of India have been increasing dramatically over the past 7-10 years and the losses from such calamities are said to have reached over crores and crores of financial losses to home owners and other stakeholders. According to a recent study by the Natural Disaster Management Authority (NDMA) around 59 per cent of India’s land area is vulnerable to moderate or severe seismic hazard, implying that it is prone to shaking of MSK intensity VII and above. Also over 40 million hectares (12%) of its land is prone to floods and river erosion; close to 5,700 kms, out of the 7,516 kms long coastline is prone to cyclones and tsunamis; 68% of its cultivable area is vulnerable to droughts; and, its hilly areas are at risk from landslides and avalanches. Moreover, India is also vulnerable to Chemical, Biological, Radiological and Nuclear (CBRN) emergencies and other man-made disasters. Rapid, uncontrolled, unplanned urbanisation across all regions of India, continuous development even within high-risk zones, changing demographics, climate change compounded by reduction in biological diversity compounds the disaster risks in India.
A global study has pegged the economic loss to India at $ 79.5 billion (Rs. 55,650 crores) over the past 20 years only on account of Natural Disasters. Be it the past Chennai floods that claimed a total loss of over Rs.9,500 crore, or the 2013 North India floods that reported a loss of Rs.15,000 crore, India has been badly affected by Natural Disasters.
To reduce the burden of losses from disasters, there is an urgent need to increase home insurance penetration in the country. According to a FICCI report, only 11% of the total losses caused by floods in Mumbai, Surat and Uttarakhand were insured and here we are talking about relatively progressive cities/states. Further to that, according to Swiss Re’s 2015 Property Protection Gap study, India is among the most under insured countries relative to GDP, with penetration of property insurance as low as 0.07%, against 0.36% in Brazil and 0.23% in Russia. Home insurance accounts for only about 2% of the total premium collected by all General Insurance companies in India. And this is also on account of Financial Institutions mandating a home insurance for the purpose of mortgages being sanctioned.
Awareness about home insurance among the masses is very low. The few who understand do not consider buying insurance to protect their homes believing that nothing will happen to their homes and home insurance is an unnecessary cost to be borne.
What does Home Insurance covers and what it does not?
Home insurance will cover damage to or due to
- The structure: The Fire Insurance Policy covers the cost of replacement or repair and reconstruction of property and contents in case of damage from fire and allied perils including Earthquake and other natural perils. Any damage or loss to your house, the fixtures & fittings inside, and the renovations will be covered. This also includes extended parts such as garage, drainage, and sewer too.
- Contents of the house: The coverage also extends to the contents of your home such as valuables, appliances and jewelleries and other works which are of worth to the home owner. You are also covered for the loss or damage to them during transportation in some insurance plans.
- Burglary /Theft: Should anyone burgle home or there is a theft at your home, your insurance policy would cover you for the loss of your possessions. The difference between Burglary and Theft is that in Burglary, there is a forceful/violent entry unlike in Theft.
- Alternate accommodation: In the case of a loss due to any of the covered perils to the subject property, the insured may have to stay in other accommodation for a while. Your policy may reimburse you for such expenses.
- Liabilities: Certain policies may also cover you for any legal or medical liability that arises out of injury to domestic employees or third party
- Loss or damage to portable equipment anywhere in India : The insurer will indemnify you in respect of the accidental loss or damage to “portable equipment” anywhere in India.
- Loss of or damage to “curios, works of art and paintings”: The insurer will indemnify you in respect of the accidental loss or damage to “curios, works of art and paintings” whilst stored or lying in your building.
Home insurance does not cover damage due to…
- Negligence: Did you forget to lock your house when going out? Or failed to turn off the water heater or any other home appliance that could potentially cause damage to your home? If you do not take reasonable measures/precautions to care for your house, the home insurance will not cover the losses.
- Intent: If the loss to your home is caused intentionally, the insurance policy will not offer coverage.
- Regular Wear and tear: With regular use, your house and its contents are bound to undergo wear and tear. For example, corrosion or rusting may occur. The policy does not provide for such wear and tear.
- Unexplained loss: Sometimes, a loss or damage may occur due to unknown reasons. If the insured is unable to explain to cause of the loss the policy may not cover those.
- War: Any consequential loss or losses, destruction, damage or bodily injury due to war, invasion etc. would not be covered.
- Nuclear and radiation loss: Damage due to ionizing radiation contamination or nuclear weapon will not be covered
Why Home Insurance Is Important?
Basis/Methods of Loss settlement under Home Insurance Policy
- Indemnity basis : When a property or item is insured on Indemnity basis, the insured will get a compensation for the item damaged after a deduction for wear and tear
- Reinstatement basis: When a property or item is insured on Reinstatement basis, the insurer will settle the loss by replacing the damaged property or item with a new one, which is equal to but not better than the one damaged
- New for Old basis : This basis means that when an item is damaged beyond repair, the insurer will pay out for the replacement for the same in full
- Agreed Value basis : Agreed value basis means the loss will be settled by the insurer on the value of the property or content agreed by the insured at the time of purchasing the insurance policy