Housing and insurance
The primary objective of insurance is to
reduce risks. Insurance products are an integral part of the
housing industry. There are various variants of insurance
for housing in general. Firstly, there is insurance for housing
loans. Secondly, there is insurance for the house property.
Then, there is insurance for household goods.
Cover for loan
This product provides cover for repayment
of a housing loan to the bank in case of unfortunate demise
of the borrower. The loan amounts involved in case of housing
loans are quite high and the tenures pretty long. As such
the risk element is high, if one considers the element of
uncertainty in life.
Banks generally tend to have the loan amount
secured by insisting on insurance for the outstanding loan
during the term of the loan period. There are a number of
products available in the market. The cover free of cost or
it may have an arrangement with some insurance company to
provide concessional insurance cover.
Banks have come out with new and innovative
schemes jointly with insurance companies. They provide security
for repayment of loan in case of untimely demise of the borrower.
Innovative home loan insurance schemes have been devised with
a variety of options. The products are flexible and suit the
requirements of the borrower. The insurance cover and premiums
can be for pure risk cover or they may cover both risk and
investment objectives. Many variants of the insurance schemes
are available in the market depending on the requirements.
The premium payable and the returns vary accordingly. Various
optional add ons can be combined including loss of employment,
critical illness cover, term rider cover etc. on payment of
extra premium. These optional benefits are available to customize
the policies to suit the specific needs of the individual.
In case of some unforeseen happening to the life of the borrower,
the borrower/his family is not burdened with the liability
of repayment of the loan.
The premium depends on the loan amount, sum
assured, and the age of the borrower. The entire premium for
the tenure may be collected in advance on the basis of the
rate applicable to the particular age group. The sum assured
is equal to the outstanding loan amount.
In case of a pure insurance product, only
the risk is covered – I.e. the risk of non – payment
due to denrise of the borrower. The premium is low. In non-participating
pure risk cover plans, on benefits are payable on survival
at the end of the policy term. After the repayment of the
loan, the borrower dose not gets anything. The insurance cover
comes to an end on completion of loan repayment. In case of
insurance plus investment products, the premium payable is
higher as it covers the risk and also promises a return on
the expiry of the loan period.
Insurance of property relates to insurance
coverage for the constructed property. The insurance company
covers risks of damage to property. The insurance company
covers risks of damage to property by earthquake, floods,
fire, lightening, and other specified risks. In case of such
damages, the insurance company makes good the loss suffered
by the insured.
Another related product is householder’s
insurance. The householder’s insurance policy provides
protection for house owners. It is a comprehensive cover that
protects householders from the risks and contingencies they
may face at home by providing protection to the property as
well as the insured possessions. It covers the risk of damage
to the policyholder’s home, theft of valuables; break
down of domestic appliances and accidental breakage of glass
fixtures. The policyholder should insure the home’s
contents of a their full value. This is a package policy and
meets the insurance requirements of a householder by combining
under a single policy, a number of standard policies usually
taken by householders. For insurance of break down of domestic
appliances, the sum insured should represent the current replacement
value of a similar item. For the insurance of household items,
one needs to group the items in a broad category like furniture,
clothing, linen, utensils etc and give a value equivalent
to the market value.
Some risks this policy covers
Fire and allied perils: this includes fire, lightening explosion of gas in domestic
appliances, bursting and overflowing of water tanks, damage
caused by aircraft, riot, earthquake, flood etc.
Burglary: This covers contents of the house
against loss due to burglary.
All risks: Covers jewellery and valuables
against loss or damage by accident or misfortune while kept,
worn or carried anywhere in India subject to the value declared
in the schedule.
Plate glass: Covers loss or damage to fixed
plate glass in the insured premises by accidental breakage
subject to limit of sum insured.
Breakdown: Covers domestic appliances against
damage due to mechanical or electrical breakdown.