Home Insurance

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Home insurance is a form of property insurance that covers damages caused to a house or any possessions in the home and can be opted for by house owners.

There are two types of home insurance which are mainly opted by owners:

  • Building Policy
  • Package Policy

Building Policy

As is evident by the name, this policy is meant for the structure of the building. It also covers damages caused to the structure. This policy is useful for owners of houses or a building if they are renting out space for residential or commercial purposes.

Homeowners can buy a building policy for multiple years.

Package Policy

A package policy covers the contents of a building along with its structure. The contents may include household goods, furniture, appliances, gadgets, and jewellery. The policy covers all of this along with the structure of the building.

Additional Benefits

This policy also has additional benefits like:

  • Rent expenses for alternative accommodation. This facility can be availed up to a limited period or till the house is rebuilt (whichever is earlier).
  • Public liability in case of damage to property. It also covers compensation payable to a person who has suffered injuries due to the property’s structural damages.

Scope of coverage

This policy covers damage to the property and/or the contents due to the following reasons:

  • Fire and related causes
  • Earthquake
  • Burglary or theft
  • Storms, tempests, floods and inundation (also called STFI cover)
  • Riots, strikes and malicious damage (also called RSMD)

Some insurers also provide coverage for household goods during the shifting of residences within the country or abroad.

Case Study

In 1995 Abhishek Sarna bought a residential property in Ahmedabad. The newly constructed property was valued and insured for Rs 30 lakh that year. He also insured his household goods and valuables under the package policy for Rs 8 lakh.

Mr Sarna also purchased a comprehensive cover to insure his new house against earthquakes and burglary.

In 5 years, his assured home insurance sum increased to Rs 32 lakh, keeping up with the rising construction cost. The amount for the contents of the house reached Rs 10 lakh.

In January 2001, his house suffered a considerable amount of damage due to an earthquake. This resulted in the destruction of several household goods. Mr. Sarna spent Rs 37 lakh in rebuilding the house and got Rs 32 lakh as reimbursement from the insurer.

The insurer also reimbursed Mr. Sarna’s rental expenses for 12 weeks as he had to stay at a hotel for three and a half months while the house was being rebuilt.

However, the insurer reimbursed only 30% of the cost of repairing his household goods taking into account the depreciation in value.

Hence, the home insurance policy ensured that Mr. Sarna had to spend only Rs 10 lakh from his pocket despite the total cost of repairs coming to Rs 40 lakh.

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