ZanyBrown

The question is a “no-brainer”- as North Americans would say.  It does not even merit a second thought. Insurance cover and a new house purchased on a mortgage go together like tea and Parle glucose biscuits.

Insurance is a must if you are planning to take a mortgage loan for your dream house. In any case Insurance is mandatory, or else the financial institution providing the mortgage won’t process the loan. But down the line the temptation to do away with fire, flood and earthquake coverage is compelling, in which case there are some points to bear in mind.

Houses in North America are made of wood and light up like a “phujari” at Diwali in the event of an accidental fire. My family knows what is like to have a fire in the house. The fire started in the kitchen while I was checking out a camping stove and next thing I knew was I was holding on to a disposable cylinder that was throwing noisy flames. Fortunately, nobody got hurt and we managed to put it out before the fire engines arrived. The damage took four months to fix and my family was housed in a hotel for that period. We only had to pay forty percent of our food bills but the thought of eating food for four months in a restaurant is only slightly better than what the food must be in Arthur Road jail in central Mumbai. The insurance company settled the bills, but we were only too happy to get back home after four long months. The insurance company had spent $99,000 and gave us back a brand new looking kitchen and a re-painted house. It was a good thing we had fire coverage.

Floods like the recent Red River flooding along the path of the river Manitoba and thence to the United States occur once in a while but the Pacific sea coast of North America is fraught with insecurity with the underlying ‘San Andreas Fault.’  If ever there is an earthquake of magnitude 9 on the Richter scale it won’t be any big surprise.

The question is “ Why take a risk?” That becomes even more relevant when we take selective risks. Let us say, John insures for fire and flood but decides to save $200 per year by not taking earthquake insurance.  His thinking is: “ It hasn’t happened in the last fifty years and it probably won’t happen now. Do you want to be like John? That is up to you to decide.

But if the earthquake does take place and your house is entirely or even partly wrecked, get ready to borrow anywhere up to two hundred thousand dollars to fix your house. Even if there is a structural crack in the plumbing lines it can cost a packet. Earthquake coverage usually comes with a deductible of five to ten percent. But even that is worth it considering how much you can avoid paying to get your house fixed.

There is only one note of caution: Don’t go in for an insurance policy mainly because it is linked to the financial institution providing the mortgage.  Instead, shop around and you might get insurance coverage for ten to twenty percent cheaper. This is not like in India where insurance is nationalized and there are just four major insurance companies providing coverage for general insurance.