Awareness regarding home insurance is negligible in our country as compared to other countries. Most of the people are not aware about ways to secure their home against unexpected eventualities. If something happens to their dream home, what is the outlay available to recover the financial loss? In such a case, there is a need to make the customer understand the importance of a home insurance policy and its benefits.
What does a home insurance policy cover?
There are various home insurance package policies available in the market that cover major risks associated with home and its contents against perils such as fire, theft, burglaries, floods, earthquakes and other natural calamities. Under these plans, the structure and/or contents like jewellery, electronic & portable items, furniture and fragile items etc., are covered. The various perils under the policy not only include natural calamities, but also risks like bursting of pipes, riots, and malicious damage. There is also an option to insure your home against terrorism by paying an additional premium.
What one often does not know is that it covers losses on account of third party liability as well.
A significant aspect that every home insurance policy buyer should keep in mind is how the sum insured for their property is determined and its implications in case of a claim. Currently, a majority of the home insurance policies available in the market provide the option of insuring your home i.e., the structure, at either reinstatement value or indemnity value. In case your home has been insured on the reinstatement value, what will be accounted for is the cost of construction only. To be precise, the cost incurred to reconstruct the house (labour and material cost). On the other hand, if the house was insured on its indemnity value, the amount paid will be the reinstatement value less depreciation which is based on the age of the property.
Moreover, a lack of popularity of home insurance products is a result of complex procedures and documentation, whether it is at the policy issuance stage or at the claims stage. A procedure that allows the customer to deal with a simple product without the additional effort is therefore important.
Need for innovation
We, at Bajaj Allianz General Insurance, conducted a survey to understand the current market requirement when it comes to a suitable cover for the home owner. What customers require today is a security blanket that will provide cover against various contingencies that usually go unacknowledged. The need of the hour is, therefore, an easy to understand and innovative comprehensive all risk home insurance policy that will not only cover all possible risks, but also ensure ease of transaction. The present need is for a cover that will take into account growing inflation, whether it is the property prices or cost of consumer durables, which are some of the prime elements that a home constitutes of. Based on this feedback, one could look at policies with innovative covers like:
Option to cover the property on an Agreed Value Basis
Typically, a house is covered on either its indemnity value or the cost of construction. However, customers today are looking at policies that promise a cover for their home at its sale price. In an Agreed Value Policy, the customer will have the option of insuring the property as per the rate mentioned on the sale deed, as on the date of proposal. This will be helpful especially in case of a total loss
where the insured will get an amount that will take care of both, the cost of construction and the cost of land, making it a worthwhile option for owners of flats and apartments.
New for old: Unlike the existing basis of settlement for contents which indemnifies the insured after considering the cost of wear and tear, a feature like new for old for contents up to the age of 5 years, will be more welcome. The benefit of such a feature is that it will provide the insured with the option of not getting affected by depreciation charged on normal policies available in the market.
Rent for alternate accommodation: In case of an unforeseen event that makes the home inhabitable, one would need to move to a rented accommodation. An in-built cover that could take care of the expenses incurred towards additional cost for rent could be immensely beneficial, so as to reduce the financial burden on a person.
Ease of use: A hassle-free long-term cover coupled with minimal documentation, especially since consumers are living life in the fast lane and saving time is always essential. Large amount of documentation can be a deterrent to many, leading them to the decision of not availing of essential services.
The author is vice-president & Head - Non Motor Claims, Bajaj Allianz General Insurance. The views expressed in this article are his own