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Wednesday, June 05, 2013

Home Insurance for an Apartment Flat in India

Any standard home insurance policy will protect the structure of your house and its contents from perils such as fire, flood and earthquake. The terms are therefore straight if the house is on your own land. However, if you own an apartment, which is equally exposed to the dangers of getting partially damaged or completely razed by a natural or man-made calamity, it may raise some queries in your mind considering that your apartment is just one part of the complete building. Let us find more.

How it works?
In case of loss due to risks listed in the insurance policy document, the insurer will pay on the basis of the house's reconstruction cost. The reinstatement value (the price needed to reinstate the house back to its original condition before the calamity) is calculated on the basis of the built-up area and the construction cost, generally fixed by the insurance company. 

How to calculate the Sum Assured Needed?
You just have to estimate the cost of rebuilding the apartment 'which should be the sum insured' and the insurance company will pay accordingly in case of loss. The insurance plan for an apartment has the same underwriting principles and sets of inclusions and exclusions as a policy for an independent house, irrespective of the floor on which the flat is. There are no additional features either. The insurance is done considering the built-up area and the cost of reconstruction. If you feel the society's insurance is inadequate, buy an individual policy as a top-up cover.

Who does the group insurance?
Usually, housing societies get the structure of the building insured. This means you have to insure only the contents of the house such as jewelry, electronics and furniture. If the society hasn't insured the building, you can buy a cover individually as well.
In such a case, each flat owner gets a separate insurance cover. An insurance contract is concluded based on declaration by a proposer wherein occupancy is also declared. So, if your declared occupancy has not changed, for example from residence to a shop, the policy will continue and the claim will not be affected even if your neighbor has breached the contract.

What about an "Under Construction" Apartment
You cannot buy a cover for an individual apartment in the course of its construction since it is part of the entire building structure. While a building is under construction, it should ideally be covered under a project insurance policy taken by the builder.
This would be in place until the construction is completed as per the approved plan. After the completion of the project, either individual flat owners or all of them together, as a society, can buy the insurance cover.
In case it is a private bungalow or an independent house which the customer himself or a builder is constructing, then the owner can take a cover for the same and change it to a regular home insurance cover  after the completion of construction.

If neighbor violates policy terms in a group policy

An insurer can reject your claim if any commercial activity is being carried out from your house. But if the flat is covered under a common policy taken by the society as a whole and your neighbor violates the policy terms, then usually it does not lead to rejection of your claim. Such activity by a neighbor will not affect the claim as long as the flat owner doesn't breach the contract himself.

What about common areas of the building?
The only difference between buying a cover for an independent house and an apartment relates to common areas such as compound walls, staircase, etc.
The whole apartment, including the common area, can be insured only by the residents' association on behalf of all flat owners. In such a case, a copy of the policy is given to each flat owner with details of the sum insured for individual flats. If an owner feels the sum is insufficient, it can be increased through the association only.

Will the claim settlement be with society or individual owner?
If a single flat in a building has been insured the cost of reconstruction of the flat is payable, to the flat owner, but up to the sum insured. Even if the proposer was the association, there is a provision to settle the claim with individual flat owners, to the extent of damage to the flat, provided the association gives a no-objection certificate. However, if the association takes up reconstruction, the amount will be paid to the association only.

Adequacy of sum insured
Since sum insured is the basis of compensation, it is important that it reflects the correct property value. Most people make the mistake of choosing the sum insured equal to the market value of the house, which may be extraordinarily high. However, the company pays on a reinstatement basis, which keeps fluctuating with construction costs.
On an average, one can take a 10-15% increase in the cost of construction (this differs from city to city) every year. One can check construction rates from the municipal corporation or real estate websites. However, arriving at an exact figure is difficult.
A customer can also opt for an escalation clause for increasing the sum insured every year. "The escalation can be up to 25% of the sum insured.

Tenure of the cover
You can either go for an annual cover or choose a multi-year policy. While the annual policy will give you the option to revisit the sum insured's adequacy every year, a long-term policy offers discounts which can be as high as 50%, depending on the tenure.

Cheers
Manoj Arora

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