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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.

Property cover

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.

Household goods

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.

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