Home loan insurance is more important than home insurance

Published in Mint on, Mar 26 2013, Written by Kapil Mehta

The insurance company paid only the small cost of replacing the point of impact part of my car which was caused due to an accident. All other costs such as oil and internal parts damaged were not paid for as they said that 90% of the estimate was secondary damage and not covered by insurance. How can I get a full cover policy?
—Chetan

Most motor policies exclude consequential loss. Consequential loss is when the proximate (or immediate) cause of the damage is not an insured event. The insurer will ask the question: what caused the damage? If the answer is a risk that is not covered by insurance the claim will be denied.
Take the case of a car that breaks down in heavy rains. When the tow truck pulls the vehicle it damages the fender. This fender damage will be denied because it was not caused by rain but by a tow truck intentionally pulling your car—a risk that is not covered. Assume a car suffers an accident where, unknown to the driver, the engine oil leaks out. On starting the car without engine oil, the engine can seize and be damaged. This engine seizure can be denied on the ground that it was caused by the driver starting the car rather than by the original accident.
Establishing consequential loss can be subjective. If you feel you have a strong case then escalate the issue to the company’s grievance cell or the insurance regulator’s grievance department. Demonstrate that the damage to internal parts and oil was caused by the accident and that there was no other event after the accident that could have caused this damage.

I have purchased a flat on loan and I would like to insure the apartment. Could you tell me the difference between home insurance and home loan insurance? Which is a better option?
—Sumeet Shekar

Home insurance and home loan insurance cover entirely different risks. Home insurance covers material damage to your apartment caused by fire, earthquake, flood or malicious damage. It can also be extended to cover burglary and damage to your household items. A home insurance will cost about Rs.15,000 per year for Rs.1 crore of insurance cover.
Home loan insurance covers you for the risk of death before paying off your equated monthly instalments for your home loan. So if you die before paying off your home loan, the insurer would pay the outstanding loan amount to the loan provider and your nominees will retain the house. The cost of home loan insurance depends upon your age and loan amount. Broadly a cover for Rs.1 crore loan over 15 years will be a one-time premium of Rs.3-3.5 lakh.
Home loan insurance is more important because it makes sure that your family has a valuable asset even if you die. Home insurance is important but a lower priority.

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