Domestic insurance policies

This is the first in a fortnightly series of articles on various general insurance products

CHARITY, THEY say, begins at home. Whether one agrees with this or not, security and protection must start at home. However, either due to indifference or lack of knowledge, most householders think of protecting their properties, family personnel and their possible liabilities only when some drastic calamity occurs. But the thought is too brief to be followed by action.

This is not right. Each one of us must work out a reasonable protection against possible calamities, man-made or otherwise, to ensure a carefree life for self and family. Actually, this is not a costly exercise. Today, at least in metropolitan areas, most people earn reasonably well as compared to even a decade back. We can definitely afford the premium cost to effect a satisfactory insurance cover. But we cannot afford the losses if and when they occur.

Indian insurance companies today do have an umbrella cover for domestic insurance requirements. The policies are archaicly worded and the intentions of the insurer are not clearly spelt out. But with a little care and a lot of persistence one can work out an adequate insurance policy to meet the normal requirements of a householder.

The umbrella policy is called householders' insurance by one company and domestic multi-peril insurance by another. But all of them can cover in one policy document most of the insurance requirements of a householder.

The new entrants to the non-life insurance sector are keen on improving the cover and definitely improving the phraseology of the policy to make for transparency. It is also possible that the new entrants may create innovative add-on covers. But in today's regulatory conditions, it will take some time for this to happen.

Let us look at the insurance as it is available today. A typical domestic insurance policy would cover the following properties/liabilities against specified risks.

Advantages: This type of policy is advantageous in many ways. It gives the option to choose the cover/s desired in the list of coverages given in the Table. There will be one definite date for renewal of all the covers taken. Discounts are given for taking more than four covers offered.

Sum insured

The policy does not provide the full cover desired in respect of fire and burglary risks. The ideal cover would pay the insured person all losses sustained on the basis of the current reinstatement value of the items damaged or lost. The insurer will provide cover on reinstatement value basis for fire risks to the building / flat if specifically asked to do. In such a cover, the insured should indicate a reasonably accurate value for reinstatement as the sum insured.

But in regard to contents of the residence, the cover given for fire risks and/or burglary risks is only on market value basis. In this method of settling a claim, the insurer will pay only the market value of the contents in their condition just before the peril operated. Such a value would be negligible except for gold / silver articles.

The world over, one factor remains constant and that is inflation. Therefore, it would not be adequate compensation if the insurance company were to pay the market value of the damaged / lost items in their condition at the time of a fire or burglary. Most of the contents in a well regulated house will be a few years old and their market value would be negligible as compared to what it would cost to buy them afresh.

In burglary insurance, the insurance companies feel that they should pay only the market value and not the reinstatement value. This idea is in-built into their minds as they are in the main concerned with burglary insurance for industrial and commercial stocks. For such stocks the market value basis is adequate as most stocks would be fast moving and values do not fluctuate violently in a few months. But domestic burglary cover has to be viewed in a different perspective.

The author has posed this idea to some of the government companies which told him that in the current circumstances any change would have to be intimated to the Insurance Regulatory and Development Authority (IRDA) and its approval obtained. It is not likely that any effort will be made to approach the IRDA in this context. Therefore, non-government organisations must take up this issue and work for rectification of this lacuna.

Adequacy of sum insured

Please ascertain the probable reinstatement value of all the items to be insured and the sum insured should reflect such values. The insurer must also be instructed to issue the policy with a specific reinstatement value clause added to the policy. If this is not done, at the time of a claim, any settlement would be highly unsatisfactory to the insured person.

Unambiguous description of items covered: Care must be taken to ensure that all the items to be covered are described clearly in the schedule to the policy in an identifiable manner. For instance, do not just say TV. Indicate the make, registration number and year of purchase and include accessories such as remote control. In the event of a loss, the surveyor will refuse to include in his loss assessment any item which cannot be clearly seen to be included in the schedule of properties covered.

For plate glass, machinery breakdown, TV, PC insurance and pedal cycles, the insurance company would like the insurance to be on reinstatement value basis. They will also settle claims on this basis subject to adequacy of sum insured.

Discounts

As a number of covers are available under a single policy, the insurance company offers a 15 per cent discount on all covers except the tariff rated ones where more than four and up to six covers are taken including the tariff rated ones. Where more than six sections are covered a 20 per cent discount is given on non- tariff rates.

Under personal accident cover if the person insures his spouse and children also a 10 per cent discount is given.

When does the insurance company not pay?

In all insurance policies, the insured person must first know the exceptions. No policy is issued anywhere in the world without exceptions, exclusions and conditions. In fact, even Lord Vishnu, perhaps the first known insurer, gave a policy of immortality to Hiranyakasipu with certain exceptions. The asura's death when it occurred was due to one of the exceptions operating. Perhaps if he had been careful and negotiated the cover better, Lord Vishnu's policy might have protected him!

While each cover has specific exclusions, the insurer in all cases will not pay for: (a) depreciation and wear and tear; (b) consequential losses; (c) war and allied perils and (d) atomic and radiation risks. It will be advisable to ask the insurer's representatives to spell out the exclusions under each selected cover before agreeing to insure. For some exclusions, it may be possible to pay an additional premium and have the exclusions deleted.

What to do when a claim occurs: All of us take an insurance policy only to see that if and when a claim occurs it is settled satisfactorily and speedily. But it is not fair or realistic to put the blame entirely on the insurance company. Very often the insured person also does not provide all the required information or take the necessary steps to protect the insurance company's recovery rights.

Basic steps

Whenever a claim occurs it is necessary to inform the insurance company immediately. Where there has been a loss due to illegal activities such as burglary or theft a police complaint must be lodged. The insured has to observe the policy conditions and take necessary loss prevention and minimisation measures. Wherever relevant excess or limits of liability are applied, these will have to be taken into account.

In the case of the personal accident section, the condition of average will not be applied. In other policies, there is also a provision for contribution where there are other policies covering the same risk. There is also provision for arbitration in case of disputes.

In all claims after giving notice to the insurance company, a claim form giving details of the losses suffered and how the loss occurred will have to be given to the insurance company. The insured will also have to submit a claim bill giving details of the financial loss incurred.

N. Ramachandran

The author is an insurance consultant.

He can be contacted at

nramac@md3.vsnl.net.in

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