A Home is believed to be one single biggest asset for any middle-class family during a lifetime. The emotional value and memories attached to it are ‘Priceless’. As I keep highlighting in my posts that Home Insurance is one of the must have insurance covers. In layman terms, home insurance hedges the risk of any loss or damage to the structure of your home because of natural calamity, fire, etc. You may also opt to insure the valuables like jewelry, appliances, and other contents with this plan.
Have you ever wondered about what is the true value of your home? Trust me, it is much more than what we actually perceive. When I was availing home insurance, I asked my wife how much cover we should avail? We both grossly undervalued the true value of the home. In the case of any calamity, theft, burglary, etc. any such expenses would have come as a shock to us. Therefore, we planned, calculated and opted for Home Insurance cover as per our requirements.
Why should you buy Home Insurance?
1. The Property is mortgaged:
The average home loan tenure in India is around 8 years. Assuming I earn Rs 1 Lac per month and my home loan EMI is 50k per month. As a borrower, I am just meeting my ends or managing my household expenses. If god forbids and in the case of natural calamity, it will be a triple whammy for me as a borrower.
In such a scenario, I need to shell out minimum Rs 2,000 per square (sqft) feet in the metro city towards the cost of construction. On top of it, the loss of contents, etc. will cost another 10 Lac minimum. I am not including the cost of jewelry. Therefore, for a 90 Lac flat measuring 1750 sqft, I need to shell out approx half the amount i.e. 45 Lac towards restoration. Please remember, besides this expense I have to continue paying Home Loan EMI of 50k per month.
One of the thoughts that ran through my mind while considering this situation was that whether a bank will give me concession on home loan repayment? The answer is NO. At most, I will get EMI holiday of 3 months but what next. I will not be able to avail another loan as the property is already mortgaged. Will I be able to arrange 45 Lac at such a short notice? The answer for a middle-class family is definitely no. Lastly, I might need to shell out rent during the construction period.
The situation will be alarming, isn’t it? I.e. I will bear the cost towards restoration, pay home loan EMI, and rent. Therefore, it is financially wise decision to opt for home insurance especially if the probability of a natural calamity is high. I shared in my post, to buy insurance or not – The probability of an even can help to decide. Besides probability, there is always a hidden risk. For example, no one ever anticipated floods in Chennai.
Lastly, under the home loan agreement, it is mandatory to avail home insurance cover. Just to clarify that it is not mandatory to avail the cover only from the insurance provider suggested by your Home Loan Provider. You can opt for this cover from any of the insurance provider. For example, if you avail a home loan from a particular bank then they will suggest buying home insurance from them.
2. Financial Planning
In a normal scenario, the real estate constitutes more that 50% of the financial portfolio. It’s a different matter that people don’t consider it in their calculation because then other investments look petty in comparison :). As it is a huge investment, therefore, it forms an integral part of financial planning. Different people having different reasons for real estate investment. Some of the common examples are
(a) Retirement Planning: To generate regular rental income
(b) Financial Goals: One of my friends has 3 properties and each of them is linked to one financial goal. For example, Property A for children’s higher education, Property B for Marriage etc.
(c) Inheritance: Some people would like to leave an asset behind for their legal heirs. Besides Gold, property is one of the popular choices.
In the case of any calamity, this financial planning may go haywire. Therefore, home insurance indirectly helps to hedge risk against your financial goals/financial planning.
3. The cost of Home Insurance Cover:
Similar to a term insurance cover, home insurance is one of the cheapest must have covers. You may opt in or opt out of various add-ons depending on the probability of the event and your requirement. For example, if I stay in an independent house then I should definitely insure home contents, jewelry, appliances etc.
In my opinion, at the time of comparing cost, you should also check out features, benefits, and inclusions. For example, terrorism cover is not provided by all the insurance providers. As I stay near a defense establishment, therefore, I felt the need of some in my home insurance cover. The inclusion of terrorism cover increased the premium cost. The premium should be compared only after the requirement is fixed.
Lastly, you can save on premium cost by opting for the long tenure of up to 20 years else you may end up paying the higher insurance premium. Another misconception is that if I have rented my property then I should not buy the home insurance cover and save the premium. Please note that in such cases, you may opt for only building/structure cover. You can exclude content, jewelry or household articles etc.
Word of Caution:
Here I would like to highlight 3 important points based on customer queries on this blog
1. The Home Insurance Cover should not be confused with Home Loan Insurance Cover. Both are different products. I received large number of queries wherein the Home Loan Insurance Cover is sold in the pretext of Home Insurance as mandated under Home Loan Agreement.
2. If you are staying in a flat then it is advisable to check with your association/society whether they availed any insurance cover for complex or not. In many cases, I observed that the builder or association may opt for the cover for the entire complex. In such cases, it might not be beneficial to opt for home insurance cover or you may select add-ons based on your requirement or if the society insurance is not adequate.
3. Last but not the least, another common query from readers is whether they should buy Home Insurance for under construction property. Please note that till you receive possession of the property, the 100% risk is builders only. In most of the cases, builders buy insurance cover to hedge risk. Therefore, it is not advisable to buy home insurance cover for an under construction property.
I tried to cover all the important points related to Home Insurance. If you have any other query, please feel free to post it in the following comments section.
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