POSTED BY February 19, 2014 11:24 am COMMENTS (4)
ONI have been reading in the forums that the thumb rule when availing term insurance is 15 times your net income
On similar lines is there any thumb rule for the value of the house to be considered when availing property insurance?
Background – I am in process of taking a home loan of 25 lakh. Now property insurance is mandated for 25 lakh i.e loan amount for 20 years. Actual market value of home is 75 lakh. So does it make sense to take property insurance for 75 lakh(or above) considering the duration is 20 years and the value of house in ideal circumstances should increase with time
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Dear Roshan, please talk to your insurer, there are plans available to inflate your sum assured as per the than market cost of construction. If you want to secure from day one for future cost, you can opt for a higher cost. the prem. of such policies is very low hence you can afford to pay for 50L or even 75L Rs. sum assured for 20Y time with a single prem.
Thanks
Ashal
Thanks a lot ashal for sharing your thoughts
Dear Ashal,
Thanks for bringing in more clarity to my thoughts. with respect to above i have further clarifications
1. In case of apartment the land i own is the “undivided share of land” allocated to me. As you rightly pointed out the land is secured .
2. Let us assume that cost of construction in today’s price is Rs.2000/sq feet. If we take into account 10% inflation the approximate cost of construction after 15 years will be Rs.7500/sq feet . Is it a good practice to take property insurance keeping in mind construction cost after 15 years or just covering current year’s cost of construction is good enough?
Thanks,
Roshan
Dear Roshan, in case of home property valuation, 2 elements are involved.
1. The value of land on which property is situated
2. The value of construction of the structure of property.
Now do tell me, once the property is purchased by you, can there be any risk to your basic land? It ‘ll remain there in all possible calamities. What can be destroyed or you can lose? It’s the structure. So your property Insurance should cover only the structure related risk. In other words, your property insurance sum assured should be your construction cost.
Thanks
Ashal