Why is Home Insurance Mandatory?

The growth in the Indian home loans market has also accelerated the market for Home insurance market. The need, popularity, and acceptability of a home loan insurance product are indeed quite high. It takes only a small premium to give the much-needed financial cover, emotional security and peace of mind.

The role of Banks/HFCs in Home Insurance

On the demise of the borrower of a home loan, the burden of repayment of the loan amount falls on the surviving members of the family. In the unfortunate event of a situation arising in which you would be unable to pay the outstanding loan amount of a home loan, insurance cover that comes on payment of a small premium seems like a godsend boon.

The insurance company repays the loan amount and prevents the bank/HFC from taking over the underlying house to recover the dues. Home loan insurance is meant for borrowers who have no alternate source of money to raise capital. Nowadays, most of the banks/HFCs have an insurance arm – directly or through an associate company – to offer the insurance product along with the home loan product. There is a nominal fee attached with the product. They may choose to give it for free.

Premium of Home Insurance

There are single premium covers, i.e. the premium is payable only once, at the inception of the loan. It is, however, wise to take this cover at the time of taking the loan, as being a part of the loan package; the cost may work out to be lesser. The borrower can also negotiate and have the insurance premium reduced substantially.

Premium for your cover depends on the quantum of the loan, tenure, and age and health condition of the borrower. A higher loan amount implies a higher premium. It helps if you are a young borrower as the premium charged is less. A person with a medical condition like heart ailments will be charged more premium than a healthy individual.

Policy Coverage

Home Insurance can be bought only for This policy can be taken for the building of your home and the contents. This offer includes the damage to the building and contents of your home due to any natural and manmade disasters.

The indicative list of calamities covered includes fire, riot, strike & malicious damage, explosion & implosion, earthquake, lightning, storm, cyclone, tornado, hurricane, flood & inundation, damage due to impact by vehicles.

The insurance can cover additional expenses of rent if you are required to move into an alternative place because your home is damaged any insured peril. The benefit can be availed of if you are insuring the structure of your home.

Sum Insured in Home Insurance

Sum insured is determined by multiplying the built-up area of your home with the construction rate per sq. feet.

For Example:

The built-up area of your home is 1000 sq. feet

The construction rate is Rs. 800 per sq. feet

Therefore, the sum insured for your home structure is Rs. 8,00,000.

The structure of your home is insured for its reconstruction value which is the cost incurred to rebuild the home if it is damaged as opposed to market value which is a combination of cost of land, demand & supply scenario, etc

Instances of events for Home Insurance exclusions are

1. Losses if your home have been unoccupied for more than 30 days
2. Deliberate destruction of property.
3. Cash, bullion, painting, works of art and antiques
4. Loss, damage and destruction caused by war, wear and tear, atmospheric conditions etc.