Home Insurance: How to decide sum insured for a flat or independent house?

Home insurance protects your house from the vagaries of nature as well as man-made calamities. It offers you a sum insured in case of any eventuality so that you can build your house again from the scratch. However, deciding the amount of sum insured might not be so easy, especially when you are living in a multi-storey building. Here is a primer on how to decide on a sum insured in a home insurance policy:

The important point to note is that the home insurance policy pays only for the construction of the property and not for the cost of the land. The cost of construction is worked out by by multiplying the carpet area of the house with the cost of construction in that city. The cost of construction is generally shared by the insurance company while buying a home insurance policy. Once you decide the sum insured for building the structure of a house you need to decide if you need a cover for the contents and jewellery kept in the house. The sum insured for contents is based on the market value, which is the cost less depreciation. The value of jewellery is based on the valuation done by certified valuation experts if it exceeds a certain limit.

The premium rates for these policies are quite affordable. Consider this: for a cover of Rs 30 lakh, along with a cover of Rs 5 lakh for the contents, a pure fire insurance cover along with a terrorism cover would come to about R2,000 for a year. Adding additional covers such as burglary and theft cover, breakdown domestic appliances the annual premium works out to around Rs 5,000-Rs 6000.

Multi-storey building

The above-mentioned calculation is for independent homes. But what if you live in a multi-storey building? Here you won’t be able to build your flat until all the flats are constructed below your floor. For flat owners in a multi-story building, therefore, agreed value is a better option. The agreed value is determined based on the circle rates in the area or the opinion of the independent valuer. In case of a total loss due to an insured event, the policy pays the full sum assured to the policyholder. It is the better option as you can move to a different property with the claim money in case of any eventuality. The premium rates, however, can be higher for the sum insured based on the agreed value option.

What to do?

For those living in independent houses, the sum insured based on the cost of construction is suggested as the house can be rebuilt again in case of any damage due to perils covered in the policy. For those living in flats the agreed value is the preferred way as its pays the full sum insured in case of any eventuality.