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What if Japan Happened in India?

Date- 21 Mar 2011 Source- THE WALL STREET JOURNAL India, New Delhi http://on.wsj.com/hxNBMd By- Shefali Anand

Japan’s recent earthquake and tsunami are reminders of the havoc that natural disasters can wreck on lives and property.

Do you have financial security to protect your property and valuables if something like this happened in India?

Getty Images A house that was washed away during the earthquake-tsunami that struck Japan. Picture taken in Kashima, Ibaraki, Japan, March 20, 2011.

If not, consider getting a home-insurance or householder policy. This insurance reimburses you in case of damage to property from both natural disasters like earthquakes and inundation by rains, as well as man-made perils like riots, theft, and the bursting of water tanks and pipes.

These policies are now available from all leading general insurance companies in India, both government-owned and private companies. Many of them sell this insurance online but those policies often contain loopholes which may leave you with far less reimbursement at the time of making a claim. If your property is highly valuable, consider going through an insurance broker or directly to a branch of the insurance company. Here’s a list of insurance brokers in India.

Home insurance comes in two types – insurance for the home or apartment structure, and insurance for the contents of your home, such as furniture, electronic appliances and jewelry.

You can choose one or the other or both.

To get combined cover for a sum of 150,000 rupees ($3,330), you have to pay an annual premium of less than 5,000 rupees ($110). Premiums vary depending on the insurance company and the details of the coverage you take.

India’s largest general insurer, government-owned New India Assurance Co., charges a premium of three rupees for every 1,000 rupees ($22) of sum assured, to cover everything from your building to your jewelry and electronics. That’s a premium of 4,500 rupees ($100) for a sum assured of 150,000 rupees.

Given the relatively low premiums, and consequently low commissions to insurance brokers, salespeople don’t aggressively push these products. So, it’s up to you to seek them out.

To decide which policy to buy, first determine what you want covered.

Structure insurance “is a must for anyone who owns a house,” says Suresh Sethi, chief executive of Delhi-based firm RIA Insurance Brokers Pvt.

If your home or building is damaged due to specified events, the insurer will pay you the money needed for reconstruction.

The amount of money paid will be determined based on the cost of construction at the time of the event. If you have used expensive tiles or fittings in your home, inform the insurer before taking the policy, otherwise you’ll have problems when making a claim afterward.

Mr. Sethi explains that insurance companies have a standard rate at which they pay structure claims depending on the neighborhood. For instance, the company will assume that in the Lajpat Nagar neighborhood of Delhi, the cost of constructing an apartment is an average of 800 rupees ($18) per square foot, while in posher Defence Colony nearby, the cost of construction is, say, 1200 rupees ($27) per square foot. Unless you specify in advance, you’ll end up getting these rates at the time of making a claim, irrespective of what you spend. The premium for a standard structure policy is 50 or 55 paise per 1,000 rupees of sum assured.

While structure policies from most insurance companies are quite similar, home contents policies give you a choice about what type of coverage you want.

So, you can choose to cover your contents only against natural disaster, or also against burglary and theft. Insuring jewelry or electronic items may cost you extra.

While coverage against earthquake and floods is good, more often than not you’ll need insurance for other events. “Common claims that we get are for burglary and are about minor damages that happen due to rains,” says Pranay Shah, vice-president health and home products, ICICI Lombard General Insurance Co. So make sure to get cover against these events.

Getting insurance for home contents can be useful for both owners and tenants but these policies have a few drawbacks. If you have burglary coverage, some policies don’t cover theft if your home was unoccupied for two months. Many companies don’t cover theft committed by a house employee such as a maid.

Second, for electronic items that are a few years old, you likely won’t get enough reimbursement to cover the cost of buying the same electronics again.

This is because electronics like televisions and music players are reimbursed at “market value,” which is the price at which you bought it minus depreciation. Thus, getting insurance for electronics only makes sense in the first few years of buying them. Some companies may require separate coverage for laptops and computers. Also, these items may not be covered if stolen when they are outside your home.

Insurance companies have varying policies for covering jewelry. If you take burglary and theft cover from ICICI Lombard, for instance, it covers the loss of jewelry, silver articles and precious stones only up to 25% of the total content sum insured or 100,000 rupees ($2,220), whichever is lower.

You can get full coverage on jewelry from some companies provided you submit a report by a government-approved jeweler about the jewelry’s value, says Mr. Sethi.

Valuable paintings or art work are not covered in a standard home-insurance policy, so you might need to insure that separately. To determine if contents insurance makes sense for you, list the most valuable items in your home. Check with the insurance company or broker whether each of those items will be covered, and what you will receive at the time of making a claim. Go over the policy’s “exclusion” list carefully.

Insurance executives advise against under-insuring your property, because an insurance company can reject your claim saying you didn’t not declare and insure property on its full value.

Many insurance companies don’t cover documents so you might want to scan and save a copy online. Do the same with your insurance policy. “Maybe you should keep a copy in the office,” says Amarnath Ananthanarayanan, chief executive officer of Bharti AXA General Insurance Co.

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