Bookmarked: Looking Out For The Devil In The Insurance Details

When the Covid-19 pandemic ravaged the globe, the idea of life being unpredictable got a new meaning. It showed us that there are several things that are just not in our control and the least we can do to protect ourselves and our loved ones is be prepared. In anticipation of crises, medical or otherwise, insurance can come handy in a number of cases. Getting into the nuances of insurance and its claims in his latest book ‘Happily Insured’, author Kapil Mehta charts out a comprehensive dos and don'ts list for the readers. “When you finish this book, you’ll not only be wiser and aware of the risks you face, but also sure about how to use insurance to eliminate many of those risks. You will save yourself considerable money when buying insurance and also mitigate potential financial losses that you might have,” he says.

Here is an excerpt from the book: 

The thing about insurance is that you realize its value (or lack thereof) only when making a claim. A claim denied or not fully paid for a reason that you were unaware of, rankles. I get such complaints every day. People with the most severe grievances somehow tend to gravitate towards me to elaborately explain their problems! So, for your benefit, here are some conditions, footnotes and caveats that you should look for in your policy contract. You can prevent considerable heartburn and address these issues by asking the right questions while buying insurance rather than discovering the issues when making a claim. 

Burglary insurance does not necessarily cover theft: In insurance parlance burglary and theft are different. Burglary requires your house to be broken into, with the intention to steal. On the other hand, theft does not require forceful breaking in. A visitor to your home who pockets a piece of jewellery has committed theft and not burglary. Burglary insurance will cover theft only if explicitly mentioned in the contract. Theft insurance is more expensive, but still worth purchasing because it makes your insurance practical.

Motor insurance covers stolen vehicles only if you have the original keys: Insurers ask for original keys as proof that you were not negligent in maintaining the security of the vehicle. If, like me, you have lost your original keys and have had a makeshift pair made by the local locksmith, then you are in for trouble if your vehicle gets stolen. 

Fire insurance’s sum assured reduces each year unless explicitly stated otherwise: Consider a case where you purchase fire insurance for your home for `1 crore and renew it each year. On the fifth year your house burns down. You would expect to be paid `1 crore. Correct? Wrong. If your policy does not explicitly mention that value is estimated on reinstatement basis then you will be paid the original sum assured less depreciation, even though the cost of reconstruction may have increased substantially. This issue can be easily addressed by having a reinstatement value clause inserted in your contract.

Professional Indemnity insurance’s effective cover could be a fraction of what you think it is: Doctors, lawyers and chartered accountants are the most frequent purchasers of professional indemnity insurance. They pick their sum assured based on the exposure they face in their professions. However, most professionals are unaware that their insurance has an Any one Accident (AoA): Any one Year (AoY) ratio. This ratio determines the maximum amount that an insurer will pay in the case of any one accident. For example, if the ratio is 1:2 then the maximum liability that the insurer will pay in any one case is half the sum assured. It is common to have 1:2 or 1:3 as the specified ratio. As a result, quite often, the professional has much less insurance than they think they have. 

Limits of this kind have been at the heart of insurance-related litigation related to the 9/11 event in the US. Insurers argued that the fall of the two World Trade Towers was one single event and so should be subject to the Any one Accident limit of USD 3.5 billion. The insured argued that these were two discrete events, with both towers being hit separately (and collapsing), hence the entire claim of USD 7.0 billion was payable. The final rulings in this litigation are complex. For some insurers the courts have treated the loss as one event but for others, as two. The difference is because of the way the questions were framed in the different proposal forms. I would advise you to keep your insurance simple and ask for a per-accident sublimit that is equal to the total sum assured, which means an AoA:AoY ratio of 1:1.

This is not an exhaustive list of conditions to be aware of. But there are three things to do when you buy insurance: ask questions before you write the cheque, read the policy mindfully, and do not hesitate to push back the insurer who denies your claim.  

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Nilakantan R.S. 

In a country as vast as India, the southern states have generally performed better than their northern counterparts. The author, a data scientist, takes a deep dive into the reasons behind this divide. 

Reform Nation - September 2022

Gautam Chikermane

The author outlines and analyses the economic reforms that India has seen over a span of three decades, covering six successive governments under five Prime Ministers across nine terms—from P.V. Narasimha Rao to Narendra Modi.

The Dolphin and the Shark - August 2022 

Namita Thapar  

Between being aggressive as a shark and empathetic as a dolphin, what should business leaders choose? Shark Tank India judge Namita Thapar has the answer in her latest book. 

Journey Of A Nation: 75 Years of Indian Economy-Re-emerge, Reinvest, Re-engage - August 2022 

Sanjaya Baru  

The author outlines the 75-year journey of an independent India’s economic rise—a journey that started even before its independence.  

Tata’s Leadership Experiment: The Story of the Tata Administrative Service - August 2022  

Bharat Wakhlu, Mukund Rajan and Sonu Bhasin  

Back in the 1950s, the Tata Administrative Service (TAS), much like the Indian Administrative Service, had become quite a rage. The authors have made those TAS officers the central characters in the larger Tata story.