THE JAPAN disaster, which has left thousands dead and rendered millions homeless, has once again demonstrated the environment and mankind's vulnerability to the sheer force of nature. Worse, natural catastrophes are striking with greater frequency today than at any time in recent memory. In the past decade alone, for instance, the direct losses from natural disasters are said to have reached a trillion dollars, 20 times higher than five decades earlier. This time—in a still unfolding disaster—initial estimates from Credit Suisse and Barclays have put the cost of Japan's catastrophe at $180 billion, more than 50% higher than the total cost of 1995 earthquake in Kobe.
Even India is not a very safe place to live in. According to a World Bank estimate, one third of India's 603 districts are today hazard-prone, placing about half the country's economy potentially at risk. However, more than the economy, it's the lives and properties of millions of people which are at stake and need protection from natural disasters. It goes without saying that the loss of human life can never be compensated, but the financial shocks from unforeseen eventualities can easily be absorbed just by taking the right and adequate insurance.
The good news is that most general insurance products being offered in the market today have sufficient cover for all kinds of perils that arrive out of force majure and natural calamities. So whether it's flood, earthquake, storm, cyclone, fire or riots, among others, there's cover for all. Thus, while individuals can protect their homes, self and vehicles by taking householder's insurance, personal accident policy and motor insurance, respectively, fire and project insurance with earthquake extension may be a suitable option for business houses. Similarly, while shopkeepers insurance policy can be taken to protect one's shop, villagers can take weather or crop insurance to protect their crops.
Of all these, householder's insurance is the most suitable bet to safeguard the most valuable asset of your life—your house. The best way to safeguard one's house and belongings is to take adequate home insurance which covers natural and man-made calamities such as earthquake, flooding, storm, fire, riots etc. Many home insurances also give additional options to provide cover for risks such as damage to property from acts of terrorism, while others provide specialist covers for high-value belongings such as gold and jewellery or arts and antiques.
Structure insurance policy, for instance, insures the structure of your home against named natural and manmade disasters, while content insurance policy secures the contents of your home against the natural, man-made or social perils or burglary and theft. A customer has an option of covering both the structure and the content or has an option of covering only the structure or only the content of his home.
As a package policy, home or householder's insurance covers a combination of risks spread over 10 heads. While fire, lightning, explosion and implosion, riots, storm, cyclone and flood and inundation, among others, are covered under the head fire and allied perils, loss of or damage to jewellery and valuables caused by accident or misfortune while anywhere in India is covered under the all risk section.
Thus, if you want, you can also take individual policies like fire and allied perils and others to get limited cover. However, it is advisable to take a package policy rather than managing so many individual policies as it is very difficult to predict which natural disaster will strike you first. Also, in a package policy we have the option to choose the number of sections required (minimum four, out of which Fire and Burglary are compulsory.
Another advantage of a package policy is that by mixing and matching the sections you can get the best mix of covers you need. Also, by buying cover under more than six sections, you can even get a premium discount of up to 20 percent. However, it is advisable not to buy a cover which you don't need. For instance, getting cover for loss of your personal baggage doesn't make any sense if you are not a frequent traveller.
Home insurance, which insures one's built-up, self occupied or rented house property, is usually an annual renewable insurance contract. However, many insurers also provide options for covers that go up to 10 years. The sum assured for such policies, however, is limited to an assessed 'cost of replacement' for the construction and belongings, as some insurance doesn't cover the market value of a property or the cost of land.
All home insurance policies do have a limit for the assessed expected rate of construction per square foot on the basis of which insurance is provided. These rates can vary from 800/sq ft to 1800/sq ft, and you must be careful to ensure that you provide for adequate insurance based on the expected cost of construction. The expected premium for a home insurance of 18 lakh (1000 sq ft) covering only the structure can vary from 550 to 1,100 for one year.
Similarly, content insurance typically covers the replacement cost of a similar condition asset and there are additional limits placed for jewellery, gold, art and antiques, unless declared in advance. Premiums for home insurance of 18 lakh with contents for Rs 10 lakh can vary from 1,000 to 4,600 for one year, depending on the insurance plan selected.
However, if apart from your house you also want to get your shop insured, then you will require a shopkeepers insurance policy, which is a package policy. In fact, there are two options to cover a shop. One can buy a fire policy, wherein the shop is insured against storms, tempest, typhoon, tornado, hurricane, flood and inundation and one can opt for earthquake cover too. Another option is to buy a comprehensive shop insurance policy, which covers both the structure and the contents of the shop, and protects against financial loss in case of an unfortunate incident of fire, earthquake, fraud, burglary, etc. It also provides compensation of liability claims and accidental benefits.
Thus, buying the right cover can—to a large extent—ensure your piece of mind. Still some precautions are needed. For instance, the sum assured must cover the replacement value of your home and belongings. A person's home is usually his/her largest asset. Loss of a home and its contents can be emotionally and financially crippling and, therefore, home insurance is critical to ensure that one is able to rebuild in the event of a disaster. One has, thus, to be careful in ensuring that the policy selected provides for sufficient sum assured and that the policy's limits on rebuilding/ replacing the assets are sufficient to meet the expected cost of replacement, as under-insuring your home can be financially devastating.
Similarly, while insuring contents, one must ensure that one takes sufficient cover and provides sufficient details of the assets at the time of completing the proposal, as failure to do so may leave one open to disputes at the time of claim.
