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Nath Balakrishnan

MR DINESH Kumar, a senior executive with a leading MNC, is in a quandary. He has earned a well-deserved break, and wants to take off on a holiday with his wife and kids. But here is one fly in the ointment, as it were. Mr Kumar is worried about the safety of the valuables, including electronic gadgets, in the house when he and his family would be away.

After all, they are assets built up assiduously over time. And all it will take is a smart burglar to break into the house and decamp with the *booty. How can Mr Kumar ensure that he will have peace of mind during his holiday? It is to address this need that general insurance companies have put out the home insurance policy.

Take one such policy and kiss goodbye to those worries, and enjoy the holidays.

The basics

The case mentioned above is one cover that a home insurance policy provides. Essentially, such policies have multiple features built in them, and it is up to the customer to choose those that will be of use.

*The basic feature of such a policy is the protection of the house as well as its contents from hazards, such as a fire, lightning, explosion, terrorist acts and earthquake, among others. But this cover does not include valuables (such as jewellery).

*Protection against burglary and cover for jewellery and valuables has to be taken separately, over and above the basic feature by paying additional premium.

*Taken together, the above three features constitute the crux of a home insurance plan. The other features that can tagged on to the main plan include protection for breakage of plate glass, baggage loss, breakdown of domestic appliances/electronic gadgets, such as televisions, VCRs and DVD players as well as a personal accident insurance.

How is valuation done?

In the case of property, the valuation is done on a "reinstatement" basis. If a house were to be destroyed, the "reinstatement" value will be what it costs to reconstruct the property according to original specifications. The reinstatement value can be the basis for determining the extent of insurance on the property. To illustrate, if one assumes a property spread over 1,500 square feet and reckoning cost of construction at Rs 500 per square foot, the sum insured should be about Rs 7.5 lakh (1,500 into 500/sq.ft).

Other goods in the house, such as furniture and appliances, are covered for market value. The market value is arrived at by taking into account the reinstatement value of that particular good and then applying a rate of depreciation on it.

One has to ensure that there is no underinsurance of either the property or the goods in the house. In the above example, if one decides to go in for a Rs 3.75 lakh insurance (compared to a reinstatement value of Rs 7.5 lakh) and lodges a claim for Rs 1 lakh on account of damage, the insurance company will settle the claim only to the extent of Rs 50,000 to reflect the underinsurance of 50 per cent.

No joy for art lovers

Such policies are not too kind towards art lovers though. If you love paintings, antiques and sculptures, this policy will not be of help. Part of the reason could be that it is not possible to determine the exact price of a work of art. Owners of such art objects would be better off by stashing away their collection in a safe vault. Admittedly, such a move would defeat the very purpose of an art collection, but it is at least better than them getting destroyed in a fire.

Features to look out for

As is the case with all general insurance plans, one should pay close attention to the deductible — the initial amount that has to be paid by the insuree whenever a claim is lodged. Specifically, one should look at what would be the deductible in case the house were to be destroyed by an act of God (in such a case, the amount the customer has to fork out could be higher than the regular deductible). Additionally, companies will not extend cover if the house has remained unoccupied for a specified duration (say, 30 days). Prospective customers should look out for a policy that would provide cover even if the house were to remain unoccupied for a longer duration.

Should there be destruction of property, a plan might pay a small proportion of the insured sum towards architect/surveyor consultation charges. Other plans might pay temporary resettlement charges in case the home becomes inhospitable.

Exclusions

Such plans carry a rather lengthy list of exclusions that even outnumber the inclusions! As a rule, prospective customers would be better off familiarising themselves with what their entitlement is when they lodge a claim. This will ensure they have no rude surprises during a claim settlement.

Add-ons

The added features mentioned need to be chosen only if there is a clear need. For instance, such a policy also provides for a personal accident cover. If one already holds pure term plan that includes accidental cover in its scope, going in for the same cover under this plan would lead to duplicity. In any case, there is a limitation on the extent to which personal accident cover can be sought under the home insurance plan (it is a function of monthly income). Term plans may prove to be a better option.

Suitability

The decision to purchase a house is probably a once-in-a-lifetime investment for most. And all the appliances and gadgets — the trappings of modern life — do not come cheap either. For an outlay that is a minuscule proportion of what is expended on the house and the accoutrements that go with it, one need not necessarily see his investment go to ashes if his house were to be gutted by a fire.

And yes, in case you are wondering about what happened to Mr Kumar who was in a spot of bother, he did finally go on that much-deserved holiday after signing up for a home insurance plan!

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