Why buy home insurance?
Many people cite high premiums as the reason for not buying home insurance – or they just don’t think it’s worth it. But have you ever thought about what it would cost to rebuild your home and replace all of your belongings?
Home insurance is there to protect you and your investment. It covers not only your house, but also its contents, like your personal belongings, electronics and appliances. Comprehensive home insurance will pay you for the loss you suffer when unexpected events cause physical loss, damage or destruction of the building of your home, and articles or things in it.
Home loan insurance vs home insurance
You may be more familiar with the term ‘home loan insurance’, or mortgage loan insurance. This is insurance taken out on the mortgage used to buy property, and not insurance for the property itself.
Home loan insurance can be used to pay off your outstanding home loan debt in the event of your death or disability. It does not protect the building or its contents. Home insurance must be purchased separately.
How much home insurance do you need?
The Indian subcontinent is particularly at risk when it comes to natural disasters and climate catastrophes. Tropical cyclones, landslides, flooding and earthquakes cause frequent damage. Summer months historically see a rise in burglaries when residents go on holiday, and an increase in electrical fires caused by extreme heat.
If peace of mind had a price, home and property insurance would be it. It’s recommended that you take out enough insurance to cover the costs of replacing your belongings and rebuilding your house, if necessary.
Different types of home insurance
Buildings insurance
Buildings insurance covers the actual structure of your house, as well as garages, sheds and fences. You should take out enough insurance to cover the entire cost of completely rebuilding your house, if necessary. This is known as the ‘sum insured’.
The cost of rebuilding your home won’t be the same amount as the price you paid for the property, or how much it’s currently worth. Because it doesn’t include the value of the land, rebuild cost is usually less.
If you recently made a mortgage application, you’ll have received a valuation which will include a rebuild cost.
The rebuild cost can be estimated based on:
- Home improvements, such as adding an extension or conservatory
- ‘Non-standard construction’ properties
- Construction costs that increase over time
Contents insurance
When you buy contents insurance, you’re buying insurance to protect your belongings inside your house. It’s important that you estimate their worth properly. If you ever have to replace them, you’ll need enough contents insurance to cover your losses.
To work out the value of your contents, you can:
- Make a list of items in each room of your home
- Estimate how much it would cost to replace each item with a new one
- Add up the cost of all your items to get your estimate
You can find contents insurance calculators, as well as the price of most items, online to help you do this. You may want to get any valuables such as antiques or jewellery, appraised by a professional.
Some insurance policies have a limit on how much you can claim on a single item. You may need to add extra cover for any valuable items that exceed that limit.
Loss of rent and rent for alternative accommodation
This type of insurance policy will pay the difference in your rent or alternative accommodation if your home becomes uninhabitable. Coverage is usually for a maximum of 3 years. Loss of rent insurance will also cover landlords’ rental income if their property cannot be rented because of damage. To make a claim, you’ll need to submit an official certificate that proves your property is unfit to live in.
Bharat Griha Raksha insurance
In April 2021, the IRDAI made it mandatory for all general insurance companies to offer a standard home insurance policy, called Bharat Griha Raksha (BGR). The BGR provides comprehensive insurance coverage for residential buildings and their contents. It also offers optional valuable contents and personal accident cover at affordable premiums.
It’s important to carefully check your home insurance policy. There may be certain exclusions, such as fire or debris removal, that you may feel you need insurance add-ons to cover.
