Home insurance is affordable
Most individuals do not consider it necessary to opt for home insurance and view the potential risks slightly.
Also, there is a common myth that home insurance is expensive. The truth is that the premium cost for home insurance is nominal when compared to the cost of rebuilding your home.
Rebuilding: A Huge Financial Burden
Simply put, rebuilding means reconstructing a damaged house. Cost of reconstruction depends upon factors like location, built up area, and quality standards. Rebuilding cost is computed by multiplying the area to be rebuilt with the construction cost per unit of area. Such unplanned expenses can lead to a significant dent in your finances.
Sum Insured and Premium
For structure insurance, sum insured is calculated based on rebuilding cost. For content insurance, sum insured is the market value of the contents to be covered.
Premium is calculated on a certain percentage of the sum insured, which is decided by the insurance provider. You can estimate the premium cost yourself through online insurance portals. You will need to provide data like square feet (sq. ft.) area to be built, the construction cost per sq. ft., age of the house, etc. For contents insurance premium cost, you have to provide the market value of the items to be insured.
Add-on covers like damage due to terrorism or alternate accommodation can be opted at a nominal additional premium. Major structural changes (e.g. extension of house) or significant increase in the value of content (e.g. buying expensive gadgets) will result in a higher premium.
Consider that the construction cost in a tier-II city is Rs. 2,000/ sq. ft. and the built up area is 1,200 sq. ft. So, cost of reconstruction is Rs. 24 lakhs (i.e. 2,000*1200). Value of contents is say Rs. 2 lakhs. So total sum insured is Rs. 26 lakhs without considering any depreciation of the house or its contents
Assume the annual premium cost for structure and content insurance is Rs. 1,450 and Rs. 620 respectively. Therefore, the total premium cost is Rs. 2,070 annually and a nominal Rs. 172.5 monthly. To put it in perspective, Rs. 2,070 is 0.08% of the sum insured of Rs. 26 lakhs. So the premium cost for a basic home insurance policy is almost insignificant compared to the financial protection it offers.
Make an Informed Choice
Think of the premium cost as an integral part of investing in your house. If an unfortunate disaster strikes your home, it can erode your savings if you do not have adequate insurance cover. While a calamity causes emotional trauma, not being insured can cause financial strain too.
A friend's house was destroyed in a fire, but fortunately for him, he has a home insurance policy to save him from the financial mishap. Disasters could strike anywhere at any time. Buy home insurance now to secure yourself against these.