FEEL AT HOME, WITH INSURANCE
Best ways to secure your house from natural and other calamities
Ahouse is one of the biggest investments of one’s lifetime. But an unpredictable natural calamity, like the recent floods in Kerala, can destroy your prized possession and leave you staring at an uncertain future. Things worsen if one has serviced a home loan. No wonder experts say insurance for your house is a must-have.
A basic home insurance policy provides cover against calamities, such as riots and fire. Some include burglary and theft, while others offer these as add-ons. One can even take cover against terror attacks. Broadly, there are three kinds of covers—only for the structure, for the structure plus contents and just for contents. In ‘structure only’ covers, land is not covered, though Bajaj Allianz has a policy that also covers land. The cover is calculated by multiplying the area of the house with the cost of construction. For instance, a Mumbai flat with a 1,000 sq. ft built-up area may have a market value of Rs 3 crore, but taking the cost of construction of, say, Rs 4,000 per sq. ft, the sum insured will be Rs 40 lakh.
“There is a provision whereby the sum insured is automatically increased by 10 per cent in long-term policies on completion of every 12 months from the date of commencement of the cover,” says Nikhil Apte, chief product officer, Royal Sundaram General Insurance. “This takes care of the rise in construction costs due to inflation.”
In a contents-only policy, even tenants can insure their belongings. “The valuation of the contents is through a governmentcertified valuer,” says Sasikumar Adidamu, chief technical officer, Bajaj Allianz General Insurance. You can also cover jewellery kept in lockers. “Household articles are insured on their market value, so depreciation will apply,” says Apte.
Policy tenures range from one year to 20 years. A longer term policy may get you a discount.
COVER OPTIONS
Since most people buy a house in the early stages of their career, they usually
fund it through a home loan. There are two life insurance options to cover such loans: Regular term plan: You can go for a term plan equivalent to the loan amount. These are the most cost-effective as they are available online too. If you have uncovered liabilities after paying off your loan, you can continue the policy.
Reducing cover term plan: While taking a home loan, the lender may suggest a home loan insurance, also known as the reducing cover term insurance policy. “The majority goes for a group product,” says Subhasis Ghosh, executive vice president, Kotak Life Insurance. Lenders generally try to sell home loan insurance policies along with riders, such as critical illness, permanent disability and EMI payment in case of job loss, as a bundled product. In case of death of the insured, the insurer settles the loan directly with the bank. In case of a term plan, the money is given to the nominee or the legal heir, who can clear the loan with the bank. “Home loan insurance plans are generally single-pay while term plans tend to involve regular payments,” says Karthik Raman, chief marketing officer and head (products and strategy), IDBI Federal Life Insurance. You can even get the insurance premium financed. The premium amount is added to the loan amount and the EMI calculated accordingly.
WHEN ACTUAL PAYMENT DIFFERS
If the interest rate rises and your loan tenure is increased while the EMI remains unchanged, you will have bigger outstanding at any point of time. “There is no change in life cover or premium due to an increase or decrease in the interest rate. The death benefit will be the outstanding loan amount (as mentioned in the original loan schedule) on the date of death,” says Sai Srinivas Dhulipala, appointed actuary, Bajaj Allianz Life.
However, if the outstanding loan amount goes down due to partial prepayment or lowering of interest rate, the nominee will get the differential on claim.
If the loan is transferred to another bank, the policy will cease to exist as the insured will no longer be a part of the lender’s group. Some insurers provide for a surrender value option in the single premium option. “Usually, the surrender value is in the range of 50-75 per cent of the unamortised premium,” says Ghosh of Kotak Life Insurance.
Home loan insurance products are generally more expensive than term plans. There are multiple reasons for it. First, the underwriting process is quite liberal. Second, term plans are available online, which brings down the cost significantly. Insurance companies say home loan insurance could be cheaper in some cases as it largely depends on the group and the lender one is buying the cover from.
Everything boils down to the price you are paying. If you are sure that after you, your family members can manage all the paperwork and settle all the claims, you can buy a term plan to cover the home loan amount. However, if you think it will be difficult for them to settle the claims, you could opt for home loan insurance.
“The logic of reducing the term cover was that it should be cheaper than the constant cover, but it is generally more expensive. Hardly anybody buys insurance to cover the increased liabilities due to loan. Therefore, an expensive cover is better than no cover at all,” says Harsha Roongta, CEO, apnapaisa.com.