Understand your insurance terms

4

Ram Prasad

Very often we find that insurance claims do not get settled the way we hoped it would.  Insurance companies have their method of claims settlement and very often we are lost in trying to understand the correctness of the workings.

In few of the cases below I highlight instances when claims were rejected due to some decisions taken by clients not realizing its impact when an actual need arises.

Case Study 1.

There was an institution that was getting their institute insured through a close relative of theirs who was an Insurance agent for over 20 years. As the institute had no claims for 20 years, they decided to cut their insurance premium and save about Rs.40000. They did this by deleting the coverage for natural calamities. Unfortunately when a cyclone hit their institute they had damages to the extent of Rs. 1 Crore. Their claim was denied because they had omitted the natural calamities clause in their coverage. The Management denied omitting the clause and said they were not aware of this. The Insurance Company however stuck to their policy conditions and denied the claim.

As you see above one small yes without knowing its implication got the claim rejected.

Case Study 2.

This was a manufacturing unit that had availed a loan from a Bank. The Bank debited the account towards insurance policy on 1st Oct and kept the policy in the file. When the Hudhud cyclone struck in 2014 their unit suffered damages to the extent of 1.75 Cr. Their claim was denied on the grounds that the policy had stated that there will be a waiting period of 15 days against all natural calamities. Neither Bank nor the Enterprise owners were aware of such a condition.

Ø Adequacy Case Study

There is a huge misunderstanding by most Enterprises including professional Accountants that the value of Insurance (Sum Insured) must be as per the Balance sheet value which at its worst is the Net Block( written down value) or at best the Gross Block( Initial purchase cost).

Under-insurance means that the ‘sum insured’ is less than the cost of rebuilding, replacing or repairing the buildings or contents at the time of the loss or damage. This might mean that any claim that is settled will be reduced in proportion depending on how underinsured you are, regardless of the amount of the claim (See table).

A claim for about Rs 3.56 Cr being adjusted and settlement offered for about Rs.81 Lakhs.

“Caveat emptor” the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made. I will add Insurance policies also here.

Buying Insurance for your Business is not like buying Crocin or Saridon or Asprin from a medical shop. 

Therefore it is something that can make a real difference in you being in Business if not adequately covered/looked into. Hence don’t take your insurance coverage lightly and take the help of an expert.

(The writer is Vice President of Bharat Re Insurance Brokers Pvt. Ltd)
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