'Act Of God' Coverage In Home Insurance: Is It Always Required, What Does It Entail?’

As natural disasters become more severe and frequent due to climate change, homeowners should be aware of adequate insurance and coverages to safeguard their future against such unfortunate events. "Act of God" (AOG) coverage in home insurance offers a safeguard against natural disasters, however, is it always necessary and what does it entail? 

But first, let’s understand what is an Act of God coverage in Home Insurance.

AOG perils are generally those that are beyond the control of humans such as earthquakes (EQ), floods, storms, landslides, hurricanes, etc. AOG refers to natural disasters or events that occur without human intervention and cause significant property damage, often requiring extensive repairs, reconstruction, and in worst cases a complete relocation of individuals.

While many people are aware of unforeseeable damages occurring to their property due to reasons like fire, “it is possible that first-time home insurance buyers may be unaware of the coverage available under the policy,” says Subramanyam Brahmajosyula, Chief Product and Marketing Officer, SBI General Insurance.

“Coverage for AOG perils is generally built-in in homeowners policy along with other perils like Fire,” Brahmajosyula states. 

What typically is included in your standard fire policy?

Says Sharad Bajaj, COO, of InsuranceDekho, “The Fire Policy (SFSP - Standard Fire & Special Perils Policy) consists of 12 perils which include STFI (Strom, Typhoon, Flood, and Inundation).

These are usually considered a part of the Act of God's perils. However, “Earthquake is considered still as an add-on which means if someone wishes to opt or remove can get but nowadays the selection of removing EQ or STFI is not allowed generally from all Insurers,” Bajaj states.

Since the last 2 years, as per Irdai regulations products have been restructured from SFSP to Gruh, Sooksham, Laghu, and SFSP. These constitute as follows:

● Gruh: Covers only dwellings or homes - (such as only residential buildings).

● Sookshma: Covers the risk up to the sum insured of Rs. 5 crore.

● Laghu: Covers the risk up to the sum insured of Rs. 50 crore.

● SFSP: Covers the risk of more than 50 crore.

According to Brahmajosyula, the following AOG perils are covered under Home Insurance policies:

Storms, Cyclone/ Typhoon, Tempest, Hurricane, Tornado, Flood and Inundation/ Impact Damage/ Subsidence and Landslide including Rockslide/ Bursting and/ or overflowing of Water Tanks,  Leakage from Automatic Sprinkler Installations/ Bush Fire/ Earthquake, Volcanic Eruption and other convulsion of nature.

What is the cost (tentatively) of Act of God coverage? 

Bajaj informs that the rates for STFI & EQ are generally charged at 0.075% and 0.05% respectively (rates considered on permille).

Is Act of God coverage Necessary?

On 30 July 2024, heavy rainfall triggered landslides in the Wayanad district of Kerala resulting in the death of hundreds of people and mass-scale property damage for those who survived. 

In areas that have a history of recurring natural disasters like Uttarakhand and Himachal Pradesh people must insure their property to prevent massive financial losses in re-habilitation. Hilly areas, valleys, and residential towns located near water bodies are always at obvious risk of damage compared to those situated in plains.

“While homeowners who stay in flood or earthquake-prone areas should ensure that they are adequately covered for these risks, it is recommended that regardless of location, all property owners should opt for Act of God perils coverage to guard against any unforeseen losses which typically would tend to be quite extensive,” states Brahmajosyula.

Adds Bajaj, “Generally, we opt for life insurance for human lives to avoid any future financial disaster in the family if someone is not alive, the same scenario is important to have insurance of property.” He further notes that people generally avoid taking insurance for property and they don't feel that if the property where we spend half of our human life cycle is destroyed or damaged in any such disaster, the entire family either comes on the road or finds it difficult to survive. 

“The best example is the earthquake in Kutch where millionaires come on the road with their entire family and no other option but to again invest lifetime savings to build the property,” Bajaj states. (In 2001, a massive earthquake jolted the Kutch district damaging several towns and villages, killing around 13,800 people and leaving 1.67 lakh injured).

Are there any coverage limits for "Act of God" events?

Act of events are covered up to the sum insured limit opted for under the policy. “It is recommended that the sum insured should be opted for on a reinstatement value basis wherein the present-day cost of construction will be covered in the event of a loss due to Act of God's perils,” Brahmajosyula informs.

What should homeowners know when filing claims related to the ‘Acts of God’ event?

The policyholder should know that the ‘onus of proof’ always lies on the Owner (of the property) to prove that everything they are claiming with the insurer should be part of policy coverage of the respective insurance policy. 

“This is not conveyed to the Insured while taking insurance either from the agent or from intermediaries - which is a wrong practice followed by few of the intermediaries due to which when insurers ask to prove the same insured fails and claims get disputed in such cases,” Bajaj notes. 

However, he further adds that ‘no major challenges are faced by homeowners when they file a claim under Act of God as all such disasters are reported either in print/digital media, so one can get such proof and give to the insurer in any such cases.

While filing a claim for Act of God events, apart from submitting documents such as claim form, repair bills, documents establishing value at risk, etc. it is also a good idea to gather proof that shows precautions were taken in case there is a claim. “This might include ways to prevent flooding, roof maintenance, or any other steps you take to safeguard your house and neighbourhood,” Brahmajosyula suggests.