Mumbai Capital

The importance of home insurance

Reenita Malhotra Hora  

You could argue that Indians are more attuned to dealing with disasters than many other civilisations. History has certainly thrown plenty our way – both natural as well as those engineered by humans.

That said, the floods that ravished Chennai the week before last had an unprecedented effect on the city’s residents – their livelihood, their industries, their possessions. It isn’t every day that you hear about floods rising to the second storey of your home. Or that your refrigerator and armchairs are freely floating about the waterlogged mess that used to be your living room.

Insurance companies like ICICI Lombard and Tata AIG are bracing for a massive onslaught of claims, higher than the Rs 30 billion worth they received in the aftermath of the 2005 floods in Mumbai. M Ravichandran, president of Tata AIG General Insurance, expects most filings to come from residents who lost property like motor vehicles and business establishments. What he’s not expecting too much of is home insurance claims. Why? Because very few people in India purchase home insurance.

This befuddles me. For most Indians, buying a home eats up the lion’s share of their life savings. So why not go the extra mile to protect it from damage? Ravichandran points out that it’s not just home insurance that people shy away from but insurance in general – any kind.

A lack of awareness and understanding is the primary reason for the low penetration in the insurance sector in general and home insurance in particular, he says. The common man sees it as a high cost to pay for returns that she or he cannot readily see.

But when you do the math, you’ll find that home insurance can be quite economical. “People are not aware that home insurance is not expensive, that it costs around Rs 50 for just Rs 1 lakh only of basic insurance,” says Ravichandran. Of course it’s important to remember that what you are paying for is protection, and not returns.

I sometimes think our biggest mistake is our Que Cera attitude to life. Don’t get me wrong, I am all in favour of free-spiritedness, but given that you spend the bulk of your life energy building a better life and future for yourself and your family, it’s a shame to run the risk of letting unforeseen calamities destroy your natural possessions.

Home insurance protects you against damage by all sorts of natural disasters – earthquakes, floods, cyclones storms, and human-engineered disasters too including burglaries and acts of terrorism. It pays for damage to the structure of your home, the value of which is typically assessed by multiplying the area of your home by the rate of construction per square foot (on the day you take out the policy).

So, for example, if your home is 1,000 square feet and the construction rate is Rs 800 per square foot, then the sum insured for your home’s building structure would be Rs. 8,00,000.

But home insurance also covers the loss of your personal possessions located within your home. These are assessed based upon the market value of the items. So, were you to suffer a loss, your claim would be paid based upon on the value of your purchasing a similar new item, less depreciation for usage.

“Certainly, catastrophic events like the one we are witnessing in Chennai furthers the need to look at insurance much more closely. Hopefully, this will convince people to buy insurance not just for their home but as a concept to protect other assets and even have adequate life and personal accident insurance,” Ravichandran says.

Worth thinking about? Who was it who said, when you see the storms in the sky, you don’t need to pray to God anymore...but you do have to be insured.

(The writer is a journalist and author of ‘Money Smart: The Indian Woman's Guide to Managing Wealth’)

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Printable version | Apr 18, 2021 3:17:44 AM |

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