Importance of taking insurance for property

Fire incidents in building or commercial complexes have become a part of daily events in India. As per the last public data released by National Crime Record Bureau Data of 2014, a total of 4,058 Fire incidents took place in India during the year 2014.

These included Fire occurring in Residential/Dwelling Buildings, Fire in factories and Fire in commercial buildings. The repercussions from the above incidents lead to 291 individuals being injured and a shocking figure of 4099 human casualties.

Needless to say, the amount of economic losses and destruction of property from such incidents would have been exorbitant. It becomes more distressful and emotionally destructive, when the damages to the physical property are caused to your prized home/bungalow or your shop/commercial office.

The hardship and the daily toil to own your home or run a business, are shattered into ashes within minutes in front of your eyes. The only ex-post facto realization that strikes in your mind, would have been to insure the property from such unforeseen and uncontrollable forces of risk.

By opting for a Home Insurance or a Shopkeepers Insurance cover, an individual stands to minimize the financial losses and empowers him to recoup again and give a fresh start from where it was ended.

So let’s comprehend the scope of covers provided under Home Insurance policy to retail customers. Under the basic Standard Fire and Allied Perils policy, insurance companies reimburses the cost of physical damages caused to the property and the contents, due to Fire, Lightning, Storm/Cyclone, Floods & Earthquakes.

It is imperative and pivotal to note that in case of total destruction of the insured premises, insurance company will only consider to reimburse the cost of Reinstatement i.e. the current cost of reconstructing the property and not the cost of land.

Therefore while entering into an agreement with the insurance company, on an independent basis, try to figure out the current cost of reconstruction as available with the local authority, and make sure that, both the parties amicably decide upon the Sum Assured for reconstruction.

On the other hand, some insurance companies do offer an alternative for Reinstatement condition. The individual is offered to consider, opting for Market Value, which effectively means, payments towards Reinstatement cost after deducting the depreciation value of around 2.5% per annum on the age of the building.

If you are of the many individuals residing in a flat in a housing society, you can consider opting for an ‘Agreed Value’ cover. In such cases, the price of the said property is calculated based on the market value, per square feet of the area as mentioned in the Ready Reckoner for Property Tax and Stamp Duty, issued by the Revenue Department of the State Government for a particular locality in which the Flat/Apartment is situated as on the date of the proposal OR the amount mentioned in the Valuation Report of a Government approved authority as accepted by the insurer along with total square feet area of the flat.

How to calculate the right amount of Sum Insured for your property

Sum Insured = Area of the “Building” (Square Feet) indicated in the Registered Sale Deed Agreement (1000 Sq Ft) X Present Day Cost of Construction in area/ locality where the insured property is situated as per the data available with the local government authority (4000 per Sq Ft) X (1- Depreciation at the Rate of 2.5 % per annum X Age of the Building (9 Years).

Sum Insured = 1000 X 4000 X (1-0.025X9) = 31 Lakh

The above example was an indication towards calculating the Sum Insured for protection towards Structural damages (Total Loss) caused due to perils as listed by the insurance companies in their respective policy offerings.

Doubts over insuring the contents of your house can be addressed with a separate policy, offered by insurance companies, which solely extend protection towards the contents of your house.

Content Insurance or Householder Insurance Policy primarily insures the possessions you have inside your house. This typically includes Electronic Equipment’s, Gadgets, Personal Technology items e.g. Television Sets, Laptops, Tablets. Such possessions are highly susceptible to perils from Theft and Burglary.

On loss of such possession, the insurance company will provide reimbursement based on the ‘Market Value’ of the lost product. To derive the market-value, the insurance company will consider the current market cost of buying a similar item of the lost product of the same age.

For items such as Jewellery and expensive valuables such as Watches, the reimbursement is upto 10 percent of the Sum Insured , subject to the policy opted by the insured in consultation with the valuator.

Over and above the mentioned insurance cover, companies in India now have started providing  optional Value Added Products, such as, Rent for alternate accommodation in case of total loss to the property and Personal Accident cover for bodily injuries due to the listed perils mentioned in the policy document.

Before opting for a Home Insurance, it is strictly recommendable to understand the Exclusions and the process of claim intimation. Certain ownership of communicating with the insurance company in case of unoccupied property for a certain period of time is the responsibility of the insured customer to avoid claim repudiation.

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