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Home / Money / Personal-finance /  Home insurance doesn’t provide continuity benefit

I am giving my Mumbai house for redevelopment into a multi-storey building. In return, I will get ownership of two floors and some lump sum. In the meanwhile, I will live on rent. I have a comprehensive home insurance policy with a rent-paying clause in case of damages. Will that apply during redevelopment? Will I be able to transfer the policy to at least one of the new flats I will own?

—Saurabh Sikka

The standard home insurance is for completely built and occupied homes, and does not apply for under-construction property. The risk perception of an insurer for these two different types of property varies substantially.

You have two options to insure your house while under redevelopment. The first is to buy a standard fire and special perils (SFSP) policy for “building in the course of construction". The risk parameters covered can be exactly the same as that in your current policy. Typically, this policy is issued for a year. The second option is to buy an all-risk insurance. This is a comprehensive policy and covers all the named perils of SFSP policy and unnamed perils such as collapse. You can buy this for the exact duration of the construction period, even if it is less or more than a year. The policy period can be extended, if the construction gets delayed. Either you or your contractor can buy this policy.

There is no point in continuing your existing insurance. Home insurance has no waiting period, thus it has no continuity or portability benefits. When the house is ready, each flat owner can buy a separate home insurance to insure the proportionate structure and content costs.

I live in a high-rise apartment. The residents’ welfare association (RWA) has proposed to buy a home insurance for the entire complex under reinstatement basis. Is it better to buy insurance via RWA or should I buy it on my own?

—Jagmeeta

Homes are insured either under reinstatement basis or under “market value" basis. Reinstatement policies stipulate that the asset be repaired to its original position. There is no such rule for “market value" policies. Under the latter, depreciation gets deducted. This reduces the claim payable amount. So it is better to insure on reinstatement basis.

A major loss, say, due to an earthquake will need high-rise apartments to be collectively repaired. So there is a dependency on adjoining and lower-floor apartments. In such cases, it is better to buy insurance through the association. It ensures that reinstatement is not held up due to lack of funds and the RWA can help get such repairs done. Also, RWAs get the advantage of lower premiums due to bulk negotiation.

A few individual home covers help overcome this challenge. They offer to insure the house on its resale value, subject to local circle rates. If the house can’t be reinstated, they offer to pay the sum insured and claim the title of the house. This helps avoid any monetary loss to the insured.

Most RWAs insure only the structure of the building, so you must insure the contents and additional structural developments of the house through your own insurance.

To read more queries, click here

Abhishek Bondia is principal officer and managing director, SecureNow.in.

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