Should you buy a new standard home insurance plan? | Economic Times

High premiums are a big reason why many people did not get a home insurance policy. Which is why in January 2021, the Insurance Regulatory and Development Authority of India (IRDAI) issued guidelines for the issuance of a standard house insurance policy called Bharat Griha Raksha (BGR) meant to cover residential properties at affordable premiums. The insurance regulator mandated all general insurance companies to offer this standard insurance policy and as a result, most insurers have started offering this insurance cover from April 1, 2021. Here is a look at the features of the Bharat Griha Raksha insurance cover and whether you should get it. What is insured under the policy? Actual damage: According to the IRDAI guidelines, the common damages that are covered under the Bharat Griha Raksha include fire, explosion or Implosion, lightning, earthquake, volcanic eruption, or other convulsions of nature, storm, cyclone, typhoon, tempest, hurricane, tornado, tsunami, flood and Inundation, landslide, rockslide, bush fire, forest fire and jungle fire. The policy also covers damage caused by impact of or collision caused by any external physical objects such as vehicles, falling trees, aircraft, walls etc. Apart from these, the policy covers any physical loss or damage, or destruction caused to the insured property by theft within 7 days from the occurrence of and proximately caused by any of the insured events. Associated costs: Besides the actual damage, the policy covers many associated costs which often occur in case of a major damage. It pays up to 2% of the claim amount for reasonable costs of removing debris from the site. "The policy pays up to 5% of the claim amount as the reasonable fees of the architect, surveyor, consulting engineer. Further, the policy also pays for Loss of Rent and Rent for Alternative Accommodation when the home structure is not appropriate for living due to physical loss," says Pallavi Roy, Executive Vice President (Product Development), IFFCO Tokio General Insurance. Man-made disasters: Some man-made disasters are also covered under this policy which includes riots, strikes, malicious damages, acts of terrorism and missile testing operations. "Earlier, home protection fell under the umbrella of SFSP Policy which had terrorism as an optional coverage. With the launch of the BGR product, which is solely dedicated for Home Protection, terrorism has become an inbuilt coverage within the product," says Roy. Default coverage of home contents unless opted outIn many cases, any damage to the house mostly results in damage to the contents inside the property as well. BGR offers automatic coverage for the contents. The sum insured for general home contents is automatically taken as 20% of the sum insured of the home building which is capped at Rs 10 lakh if the home building is covered. If a policyholder does not want this feature, he has the option to opt out as recorded choice. Optional coverIn addition to the basic cover and in-built covers, Bharat Griha Raksha offers two optional covers, namely, (1) Cover for Valuable Contents on Agreed Value Basis (under Home Contents cover) and (2) Personal Accident cover for insured and spouse where insured peril causes damages to home building and/or home contents and also results in the death of either or both of them. If the value of such articles in your home are of significant value you can give the details and opt for higher home content coverage. “If you wish to insure valuable contents like jewellery and ornaments, you can do so by opting add on cover for this,” says Rishad Manekia, Founder and MD, Kairos Capital a SEBI registered investment advisor. "This cover can increase if you opt for a higher sum insured for home contents and declare the details. A valuation certificate must be submitted if the sum insured for valuable content exceeds Rs 5 lakh and/or an individual item value exceeds Rs 1 lakh," says Subramanyam Brahmajosyula, Head – Product development, SBI General Insurance. Optional cover for valuable contents on agreed value basis is available on declaration of the details and submission of a valuation certificate. "Valuables such as jewellery, silverware, paintings, works of art can be covered on agreed value basis," says Roy. However, if the opted sum insured is not more than Rs 5 lakh there is no requirement of submission of valuation certificate. The additional premium for these add-ons cannot exceed 50% of the base premium for BGR. Let us now look at the features of the policy as per the IRDAI guidelines. Key features Higher sum insured coverageRather than the market value, the coverage under this policy takes into account the cost which will be incurred in reinstating or replacing the covered items. "Under Bharat Griha Raksha policy there is a mechanism where one can arrive at sum insured. The details of the policy states that for residential structure of policyholders home including fittings and fixtures--carpet area of the structure in square metres multiplied by rate of cost of construction at the policy commencement date shall be taken to compute sum insured," says Rakesh Goyal, Director, Probus Insurance. The sum insured can be higher than this value but not lower. "The rate of cost of construction is the prevailing rate of cost of construction of policyholder’s home building at the start of the policy. While for additional structures--the amount that is based on the prevailing rate of cost of construction at the policy commencement date," adds Goyal. Affordable premiumUnder BGR many insurers are offering the coverage at affordable rates. For instance, you can get Rs 1 crore sum insured at an annual premium of Rs 2,466 from Digit, which effective means an annual premium Rs 247 for each Rs 1 lakh of sum insured. Over the period of 10 years you spend Rs 24,660 to for a protection of Rs 1 crore. Premiums for Rs 1 crore cover under Bharat Griha Raksha Insurer Annual Premium* New India Assurance Rs 3,000 Bajaj Allianz Rs 2,714 Cholamandalam Rs 4,180 Digit Rs 2,466 ICICI Lombard Rs 4,072 *Including GST; Source: PolicyBazaar.Com Advantage of no underinsuranceUnderinsurance does not apply to this product, a special feature of this policy. “This is a unique feature of this policy. It basically means that if the sum insured, which is calculated on the basis of the information that you have provided to the insurer, is less than the actual value at risk, then the difference will not affect the amount payable,” says Brahmajosyula. For instance, say the area of your home building is 100 sq.m and the rate of cost of construction for the city is Rs 15,000 per sq.m. By mistake, you have declared an area of 90 sq.m., and your home building is insured for Rs 13.5 lakh instead of Rs 15 lakh. If there is a loss that requires repairs that costs you Rs 5 lakh, then the insurance company will pay you Rs 5 lakh. Annual escalation of sum insured benefit in long term policyThe cost of replacement of building construction rises with time due to inflation which means that constructing the house 10 years later would be multiple times of what the cost is today. To address this issue BGR policy comes with an auto escalation feature under which the sum insured amount is raised annually. "For long term policy, say 10 years for example, 10% automatic annual increase feature is present. What this is that under a 10-year policy, the sum insured will double itself by the time the policy period gets over (10% increase every year)," says Tarun Mathur, CBO-GI, Policybazaar.com. Being an inbuilt feature this will not cost extra premium for the policyholders in future. "The escalation of 10% Sum insured every year is one of the worthy features of this standardised policy. Here the Sum Insured increases automatically, during the Policy Period by 10% per annum on each policy anniversary without any extra premium for a maximum of 100% of the Sum Insured," says Roy. Daily escalation for annual policyPrice rise is a phenomenon that not only happens annually but gradually. To give benefit of higher cost with passage of time within one policy year, the BGR offers daily escalation of sum insured. For an annual policy, the sum insured is automatically increased each day by an amount representing 1/365th of 10% of sum insured at the Policy Commencement Date. What is excluded?While the policy covers most of the common damages, however, there are certain damages that are not covered. Damages in the exclusions list include loss, damage or destruction to any electrical/electronic machine, apparatus, fixture, or fitting by over-running, excessive pressure, short circuiting, arcing, self-heating or leakage of electricity from whatever cause (lightning included). This exclusion applies only to the particular machine so lost, damaged or destroyed. Should you buy?A standard home insurance product simplifies the coverage which makes it simple for a policyholder to understand. Standardisation also compels the insurers to offer very competitive premiums. With most of the features being the same across insurers it is easier to compare the premiums and select a policy of your choice. Prudent financial planning requires one to get financial protection for valuable assets and this policy offers a good way of getting this protection at an affordable rate. “Anyone who owns a house can consider buying this policy. Even a tenant can take this policy to cover against the possible loss to general content in the house because of natural calamities, fire or theft. Given the nominal premium of such policies, it’s a good way to transfer your risk to the insurance companies, especially for those who live in hilly areas, flood zones or a high seismic hazard zone and so on,” says Manekia.