Home insurance is equal to protecting the smile of your family.

Introduction

Home insurance is a financial tool that depends on a legal contact to cover financial risks associated with a home. Based on the contract, the insurance company promises to provide compensation if any loss were to occur due to the insured ‘perils’ and as long as the homeowner commits to regularly pay the premium. Perils are the possible causes of loss, and usually include fire, flood and earthquake. In Nepal, home insurance has been practiced for a long time, and commonly known as ‘Garhastha Beema’. The insurance policy is for residential houses, commercial buildings and condominiums. If the home is damaged or destroyed either partially or permanently, the home insurance would then cover the cost of repair or replacement. Home owners can choose either to have just home insurance, or home insurance with comprehensive coverage (what is known as the comprehensive coverage).

Need of Home Insurance

Perhaps the most common dream of human being is to acquire a beautiful home, car, jewelry and other possessions. We can build a nice house, building and condominium, but they would be always vulnerable towards various risks such as natural calamities and anthropogenic risk. Nobody expects it, but things can change within a wink.

For example, the great earthquake of 2015 had changed the face of Kathmandu within 42 seconds, more than two lakh houses and buildings collapsed. Each year, many of seasonal and unseasonal natural catastrophes, robberies, terrorism, fire and other anthropogenic damage additional houses and other possessions. While it may not be possible for an individual to fully control the natural causes, a few preventive steps can be taken to minimize the volume of possible loss. In today’s busy world, one way to manage such risk is to take out a home insurance.

Coverage of Home Insurance

The most interesting aspect of an insurance contract is that it can be prepared by considering each and every individual requirement. There is also an innovative concept in insurance, called Cafeteria Plan. This concept treats an insurance company as a restaurant or a café where we can order whatever items we want. It means that the coverage in the policy depends upon risk perception when you purchase it. Generally, home covers buildings, wall and other structures. Besides that you can also insure ornaments, artifacts insurance and antique collections.

The electronic goods such as television, computer and other expensive items can also be part of home insurance policy. The policy also covers the cost of treatment up to a certain amount if homeowners and his/her family members need to be hospitalized as a result destruction of the building. Similarly, the liability insurance is also provided along with original policy if the third party faces injury due to sudden and accidental damage of the buildings.

As in any insurance, in home insurance also you need to pay fees to insure your building. The basic policy includes only the perils that could cause direct physical losses. As such, you have to try to include other possible risks by paying a little extra amount to make sure you are covered from all sides. For example, your home insurance policy normally excludes risks of natural calamities. But you can insure all of these excluded risks if you pay an extra premium.

Cost of Homeowners insurance

The cost of home owner’s policy depends on many factors including your requirements/extent of home insurance, and the coverage of contents and other possessions. The premium can also be affected by your past claim history, and risks associated with the geographic area, among other things.

Methods and mode of Payment

It would be safer to use banking channels for the payment of premiums, rather than paying directly to the agent. The premiums can sometimes also be paid through automatic electronics transfer provisions. The mode of payment includes the duration of time till which you need to pay the premium. In Nepal, the first premium is paid on lump sum before the inception of the policy. Once you have paid the premium, it covers for a year. If you have not filed any claims during the effective time period of the policy, you will get discount during renewal as a reward for creating zero claim history. You have to inform insurance your company a month prior to the expiration date in order to avail the no claim discount and other customer centric facilities.

Selection and Procurement of Insurance

It’s a general complex task to choose an insurance company. Neither the advertisements on the TV nor on the news paper, gives the true picture of the company. The management team, promoters’ background, existing business size, financial soundness, claim settlement mechanism, and willingness to adopt innovative technology are some criteria on which you must compare insurance companies. The reliability of the insurance policy also depends on its distribution channel, i.e. whether it’s through agency system, direct marketing or through bank.

The best way to start a home insurance policy is by comparing the products offered by various insurers. If you have two or more houses, you can even request quotes from insurers which will lower your overall premium.

Endorsement

An endorsement is the process of modifying -- addition and subtraction of features/benefits -- the provisions in the original contract as per the changed requirement of home owners. For example, a home insurance policy generally excludes the risks of war and civil disturbance. If you see it appropriate include them in the policy that can be done through an endorsement. As mentioned earlier an insurance policy is like a café, you can add to and delete provision on the original contract as per your convenience.

Excess

An excess is a voluntary or involuntary contribution you are obliged to pay for a claim you make on your home insurance policy. Voluntary excess adds up the loss bearing capacity of the owner. This however gradually reduces premium and saves money on regular payments. Whereas, involuntary excess is a compulsory excess mandated by insurance company in order to avoid frivolous claims. It is the fixed and mentioned in insurance policy. The excess in homeowners policy in Nepal is fixed at Rs. 200.

For example, your home was partially damaged during an earthquake and the actual cost of repairing the damage is ten thousands. If you had a Rs. 200 involuntary excess, you will have to bear the first Rs. 200 and the remaining Rs. 9800 amount will be paid by the insurer.

Claim Settlement Process

A number of important provisions in home insurance policy deal with claims. Under the claim provision, you are required to give a written notice to the insurer within seven days after the covered perils caused a loss. You will be provided claim forms from the insurer as soon as possible along with a surveyor. The surveyor is responsible for observing the accident location and assesses the actual loss. You have to assist the surveyor throughout the process by making available all the proofs of the accident. If you are not able to show any proof within a year, the insurance company will not be liable to pay compensation. If you need the help of police, civil arbitrator and other concerned authority, you can avail.

Once the claim is settled the insurance company issues a discharge voucher. But you can appeal for revision of claim if you felt the compensation was not sufficient. And, do take care of your home after initial destruction because the insurance company will not pay compensation for occurrences of additional losses citing it as the owner’s negligence.

Caution!

Your house may have been used as mortgage, or you may have built your house by taking loan from a bank. In such situation, the staff from the credit department of the bank may say that an insurance policy has already been taken out. But most of banks pay premium that is sufficient to recover only the loan amount. This type of insurance is known as under insurance. What you need is a full home insurance. Because of this misunderstanding many cases are registered in Beema Samiti after the great earthquake 2015, are yet to be settled. With this guide home insurance, you should be in a better position in the aftermath of an unfortunate event.

The best way to start a home insurance policy is by comparing the products offered by various insurers. If you have two or more houses, you can even request quotes from insurers which will lower your overall premium.