Housing Complex & Home Insurance

Home Insurance

Home Insurance is the most unsold product in the General Insurance Industry probably because of the low premium and our belief that nothing can go wrong. Home Insurance business contributes less than 1% to the general insurance industry. With recent floods in UttarKhand, Jammu Kashmir & Earthquake in North India, Home Insurance has once again come in lime light. So also, with recent amendment to the Cooperative housing societies act, it has become mandatory to insure society building, as per the bye laws of housing Cooperative Housing Society. Not doing so could also be considered as contravention of bye laws by the society management.

Points to be considered for buying Home Insurance:

  1. Sum Insured: The basis of sum insured is the reconstruction cost of the house and not the market value of the property. Thus for a flat admeasuring 1000 sq.ft, considering the reconstruction cost @ Rs.2,500/sq.ft. the amount to be insured will be Rs.25 lakhs only. Irrespective of the current market price of flat, which might be substantially higher.
    1. Should the fire insurance be taken for entire agreement value of flat? In case you have taken a housing loan, many times bankers, out of their ignorance insist on taking the insurance for the entire agreement value of the flat ignoring the fact that the agreement value of the flat would include the cost of construction of building + proportionate value of land. In such situation you would have to inform the bankers that land cannot be insured at all under the Fire policy, hence the insurance should be only for the construction cost.
    2. What should be Sum Insured for a housing society? The sum insured for a housing society or a condominium should be the reconstruction cost of the entire complex including all common areas. The estimated cost of construction per sq. ft. could be considered between Rs.2,000 to Rs.3,500 per sq. ft. depending on the class of construction or building specifications

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  1. Basis of Valuation
    1. Reinstatement Value : The sum insured in this case should be the new reconstruction cost of the house/ building and not the depreciated value. In case of a claim the insurer, will pay the reconstruction cost without any deduction for depreciation.
    2. Market Value: Market value means the reinstatement value less applicable depreciation. Under this method the sum insured will be the depreciated value of the house/building and the claims under this policy will also be subject to deduction for depreciation.
  1. Risk cover: Fire Insurance Policy for buildings would cover the following risk:
    • Fire
    • Lightning
    • Explosion / Implosion
    • Aircraft Damage
    • Riot, Strike, Malicious damage
    • Impact Damage
    • Subsidence and Landslide including Rock slide
    • Leakage from Automatic Sprinkler Installations
    • Missile Testing operations
    • Bursting and/or overflowing of Water Tanks, Apparatus and Pipes
    • Bush Fire
    • Storm, Cyclone, Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation (STFI)
    • Earthquake

STFI & earthquake are add on covers to basic fire policy and are charged separately, but many unscrupulous agents sell policy by deleting these covers just to grab business.

Additional covers like theft, burglary, jewellary insurance, electronic insurance, machinery breakdown, etc. can also be taken for the contents in the house / building.

Lift Insurance: Maharashtra government has passed a new Law i.e. Maharashtra Lifts, Escalators and Moving Walks Act to ensure that people who use escalators and elevators will be covered under third party insurance by the owner in case of an accident. The Act makes ‘Third Party Insurance’ mandatory for the owner of the lift, escalator or moving walk.

  1. Who can take Home / Building Insurance?
    1. Owners: Only the owner can take insurance e. tenants cannot take insurance of the house (building). But tenants can take insurance for the contents in the house owned by them.
    2. Housing society / condominium: Housing society or a condominium can also take insurance for the entire building complex in its own name. It is beneficial to insurer entire housing society as against individual flats, as the common areas in the society like staircase, lift, garden, water tanks, play area, club house, etc. can be insured for by the soc. only, & not with individual flat. so also, the recent amendment in the co-operative housing society act has made it mandatory for the housing society to insure the housing complex.
  1. Premium: The insurance premium though varies across companies, for building valued at Rs. 1 Cr. the fire insurance premium with STFI & earthquake riders should be about Rs.2,000/- including GST.
  1. Duration: Though the general insurance policies are for one year, Fire policy for a individual home can be taken for period up to 10/15 years, with discounts for longer term.