Homeowners Insurance - Facts about Insuring Your Home in India
Wish you all a Happy New Year 2011. One of my friends, Sudarshan, recently purchased a home and was looking for some good homeowners insurance product. ICICI Lomabard executive was behind him with Home Safe Plus product for a loan amount of 12 lakhs, one time insurance premium was around Rs. 29500 including taxes. Monthly addition to EMI was Rs. 300 including interest. ICIC homeowners insurance policy included property cover in addition to critical illness and accidental death benefit. This cover was for 5 years. He was trying to get more information on this so he asked us, me and my office colleagues, regarding this as most of us have taken a home loan, some for real estate investment and some for buying a property for residential purposes. Regarding me, I have taken a home loan from ICICI bank worth 12 lakhs in September 2005 and I also have ICICI home insurance policy the premium of which was Rs. 29640, which was disbursed along with the initial home loan.
Now Karthik had several questions including:
- How will I get tax benefit in this case? I will not get under 80C that I am sure, then how?
- Is home insurance under Mediclaim benefit? Is there any limit?
- At first place, shall I take a homeowners insurance? Cover is only for 5 years while loan period is 15 yrs.
- Property is in an area where earthquake and storms never came and chances of riots or other damages are very less. As far as accidental insurance is concerned, I am sufficiently covered under term life insurance.
- Tell me about different types of home insurance in India.
As we all were free and our shift was over, we started discussing about these questions to come up to some solid conclusions. I have compiled all the discussion that we had between each other and you can read it below:
For a loan amount of 12 lacs, one time insurance premium will be around Rs. 28000. Monthly addition to EMI is Rs. 300/- including interest.
This sounds pretty high to me actually, and between, they should have reduced their prices this year. Shop around, go to other general insurance companies and see what they have to offer. My building pays collectively Rs. 45000 for about 1+ crore of insurance per year, so you should be able to negotiate it down.
At first place, shall I take homeowners insurance?
You should take it anyhow. Fire can happen anytime - imagine your gas cylinder leaks or something. You may ditch the earthquake bit, but make sure you take the riots insurance, again, you never know, and the additional premium is too small to have to worry. And if you are going to purchase a home insurance, please keep the original policy somewhere else, not at home! Either get a bank locker to keep it or put it in a friend’s/relative’s house.
Praveen said, I would advise you take a homeowners insurance from any public sector company like United India, New India, National Insurance, etc. as I have taken a home insurance for my flat. For Rs. 20 lakhs, I am paying Rs. 1200 per annum and we have taken a home insurance policy from United India. I have found that the premiums are low in public sector undertakings compared to private insurance companies. My United India home insurance policy has covered us against all the natural disasters like flood, earthquake, fire, and other allied perils. You can also take a term insurance for yourself to cover the loan in case of any unfortunate event happening to you. You can also get Rs. 20 lakhs cover for Rs. 4000 to 6000 per year from LIC. After a few years, you can discontinue the term cover or continue it based on your needs. If you buy a term cover, you will get tax benefit.
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Sudarshan said, thanks a lot for your inputs and suggestions Praveen but this policy includes accidental benefit as well and I think that is the reason why premium is very high.
Both these products have both the accident cover plus property cover. For what you are saying you have to pay separate premium so your total cost will be Rs. 28000 plus Rs. 3600 per year for the cover of 5 years, but if you take a home insurance at Rs. 1200 per year plus term insurance with accident riders (not sure about the premium), the cost would be less, in my opinion, else you can go for home insurance plus accidental plus term insurance.
Also, these are two different concepts. Accident cover is for you personally. Property cover is for your property. They are separate things that you should not mix. For accident cover, you can take Mediclaim (you get tax benefit) or buy a term policy with additional accident coverage (you get 80C benefit). Meaning, if you buy a term policy for 12 lakhs with additional 8 lakhs accident cover (20 lakhs if an accident kills you), you will pay something like 3500 rupees per year.
Or cover your house with property insurance, which will be Rs. 1200 per year for 20 lakhs. Meaning you pay around 4700 per year for 20 lakhs of coverage including accident and property. For five years, you pay a sum total of Rs. 23500 and if you don’t pay it in one shot, you can pay it every year, thus saving your cash flow also. That’s for a 20 lakhs accident cover, obviously, it will be lesser for Rs. 12 lakhs.
Tell me about different types of homeowners insurance?
There are three types of homeowners insurance.
Type 1: The home loan that you take is insured. If anything happens to you, the insurance company pays off the loan to bank.
Type 2. Insurance of the property against earthquake, floods etc.
Type 3. Insurance of the household goods against theft, burglary, etc.
If you feel like covering against the loan take insurance of type 1 only. There is no point in getting the same financed. Try to pay from your pocket so that you do not pay interest on insurance premium for five years. You will get 80 C benefit in the year in which you pay insurance premium. This being a single premium policy, you will get rebate in this financial year only. The other riders would have already been covered to you in any other insurance policy or your employer may be giving you a full health cover or a group insurance of all the employees. Hence take cover only for repayment of the loan outstanding.
So above were answers regarding Sudarshan’s questions. There are several more common questions for homeowners insurance, which I will publish, in the next article.