Why Is Home Insurance Mandatory ?
Premium The growth in the Indian Home Loans market has also accelerated the market for Home insurance market
. The need, popularity, and acceptability of a home loan insurance product are indeed quite high. It takes only a small premium to give the much-needed financial cover, emotional security and peace of mind.The role of Banks/HFCs
On the demise of the borrower of a Home Loan, the burden of repayment of loan amount falls on the surviving members of the family. In the unfortunate event of a situation arising in which you would be unable to pay the outstanding loan amount of a home loan, insurance cover that comes on payment of a small premium seems like a godsend boon.
The insurance company repays the loan amount and prevents the bank/HFC from taking over the underlying house to recover the dues. Home Loan insurance is meant for borrowers who have no alternate source of money to raise capital. Nowadays, most of the banks/HFCs have an insurance arm - directly or through an associate company to offer the insurance product along with the home loan product. There is a nominal fee attached with the product. They may choose to give it for free.
Repayment terms
By virtue of being a term insurance product, the premiums are not high, and the borrower may opt for the product from the market at a low cost. As the loan amount increases the repayment amounts also increases. The repayment of the Home Loan is made through equated monthly installments (EMIs). Repayments are made simpler this way. EMIs increase with the increase in loan amount.
There are single premium covers, i.e. the premium is payable only once, at the inception of the loan. It is however wise to take this cover at the time of taking the loan, as being a part of the Home Loan Package; the cost may work out to be lesser. The borrower can also negotiate and have the insurance premium reduced substantially.
Premium for your cover depends on quantum of loan, tenure, and age and health condition of the borrower. A higher loan amount implies a higher premium. It helps if you are a young borrower as the premium charged is less. A person with a medical condition like heart ailments will be charged more premium than a healthy individual.
Policy Coverage
Home insurance can be bought only for the building (structure) of your home, or only the contents (belongings) or both. The policy covers the losses to the structure and contents of your home due to any natural and man made calamities.
The indicative list of calamities covered include fire, riot, strike & malicious damage, explosion & implosion, earthquake, lightning, storm, cyclone, tornado, hurricane, flood & inundation, damage due to impact by vehicles.
The insurance can cover additional expenses of rent if you are forced to shift into an alternative accommodation because your home is destroyed or damaged by any insured peril. The benefit can be availed of if you are insuring the structure of your home.
Sum Insured
Sum insured is calculated by multiplying the built up area of your home with the construction rate per sq. feet, e.g. if your built up area of your home is 1000 sq. feet and the construction rate is Rs. 800 per sq. feet, the sum insured for your home structure is Rs. 8,00,000.
The structure of your home is insured for its reconstruction value Reconstruction value is defined as the cost incurred to reconstruct the home if it is damaged as opposed to market value which is a combination of cost of land, demand & supply scenario, etc
Instances of events for policy exclusions are
Willful destruction of property.
Loss, damage and destruction caused by war, wear and tear, atmospheric conditions etc.
Losses if your home has been unoccupied for more than 30 days.
Cash, bullion, painting, works of art and antiques.
Loss to the structure and / or contents of your home due to acts of terrorism.
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