How to buy Property Insurance in India – Frequently Asked Questions

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Q. What are the requirements to purchase a property insurance policy?

A. The proposer of the policy should first and foremost have an interest in the assets being proposed for insurance, i.e. he/she should stand to lose financially in the event of loss or damage to such assets. Secondly, the proposer should submit a proposal form (which can be obtained at any insurer’s website or office). The proposal form should disclose all details, which are true to the insured’s best knowledge and other information, which the proposer may feel is relevant.

Q. What are the different types of Property Insurance Policies?

A. The most popular is the Standard Fire & Allied Perils Policies which covers most of the perils the property is exposed to like fire, riots, flood, and storm. Loss of current assets due to burglary and theft can be covered under Burglary & House Breaking Insurance Policy. Valuables can be covered under All Risks Policies and there are package policies for house owners and shopkeepers.

Q. How does one fix the sum insured?

A. Generally, there are two methods. One is Market Value ( MV) and the other is Reinstatement Value(RIV). In the case of M.V, in the event of a loss,depreciation is levied on the asset depending on its age. Under this method, the insured is not paid amount sufficient to buy the replacement. In the RIV method, the Insurance Co. will pay the cost of replacement subject to ceiling of S.I. Under this method, no depreciation is levied. One condition is that the damaged asset should be repaired / replaced in order to get the claim. It may be noted that RIV method is allowed only for FIXED ASSETS and not for other assets like stocks and stocks in process.

Q. What will be the cost of a fire insurance policy?

A. The cost of a fire insurance policy or the Premium can depend on the

• Perils to be covered

• The value of the items covered

• The usage of the premises proposed for insurance

• The location details of the premises proposed for insurance etc.

• The construction of building and occupancy

Consequent to de-tariffing of the non-life insurance segment (except Motor Third Party Insurance where premium rates are laid down by the IRDA) , premium rates charged by each insurer may differ. However, they should have been filed with the IRDA under the File & Use procedure.

Q. How does one arrive at the value of assets in Dwellings or Offices or Industries?

A. Other than dwellings, industrial units or offices will maintain books of accounts showing therein value of assets, therefore it will not be any problem in arriving at the sum insured. In case of dwellings,one should take stock of assets under broad categories like furniture & fixture, clothing, Bed linen, kitchen equipment, electronic gadgets etc and arrive at the sum insured.

Q. Why should I insure my Building? Fire can’t possibly do any harm to the building.

A. Fire and other perils (normally covered under a fire insurance policy) can cause loss / damage to buildings. There have been fire accidents that have completely destroyed multi-storied buildings.Floods can also bring about devastating losses.Similarly, Riots, Acts of Terrorism can also produce huge losses to human lives as well as property.

Q. Can I ask for cancellation of policy mid-term? Will I get any premium refund?

A. Yes.

At Insured’s option: Retention of premium on short period scale and balance if any, will be refunded. At Insurer’s option: Pro-rate refund of premium will be given.

Q. In case of loss, what are the obligations of the insured?

A. Every insured is expected to behave as though he is uninsured. Take all precautions to prevent /aggravate the loss. Inform Insurance Company who have to be given an opportunity to inspect the damages. Inform fire brigade who will assist to put out the fire. During fire fighting, any damage caused to other insured property caused by water,will be paid by Insurance Company. Extend cooperation to surveyor while inspecting and assessing the loss. If arrival of surveyor is likely to be delayed, then, take photos / and shift unaffected assets to a place of safety. Give completed claim form and documents as required by Insurer, in support of your claim. After repairs / replacement,submit bills to Insurer.

Q. If I insure for a higher value, will I get a higherclaim amount?

A. No. When you apply for a fire insurance policy, the current market value of the property or the Reinstatement value of the property, depending upon the basis of the Sum Insured, should be accurately calculated for arriving at the correct amount to be insured. The compensation payable when a covered loss or damage occurs shall be based on whether or not the property has been insured adequately. If the amount insured is excessive, it will mean overpayment of unnecessary premium; if the amount insured is inadequate you will receive amounts in proportion to the market value only.

Q. Can items like jewellery, ornaments and art works be covered by the general fire insurance policy?

A. Unless prior consent has been given by the Insurer,general fire insurance policy does not cover items like jewellery ornaments, art works, scripts,documentary information, computer system information, shares and stocks, cash. These can be covered on specific request and subject to valuation where necessary.

Q. I have taken an insurance policy covering my building. My Bank which has financed my business has also taken insurance separately.Both policies are in force covering same property. What happens in the event of a claim?

A. In the event of a claim, each insurer will pay the loss amount in proportion to the Sum Insured under their respective policies, in accordance with the principle of contribution. The object of the principle of indemnity is to place the insured in the same place as he occupied prior to occurrence.Insured is prevented from making claim for full amount of loss under each policy. Insurance company indemnifies the insured only to the extent of actual loss suffered subject to depreciation, policy excess etc., and not permit to make profit out of a loss.

Q. What is the relevance of Salvage?

A. In case of claims under various types of insurance policies, the partly damaged goods or the wreck of a car or any machinery or any other property settled on Total Loss Basis is known as “Salvage”. After settling the claim for the full amount the salvage becomes the property of insurance company.Generally the job of salvage disposal is entrusted by the insurance company to the surveyor who carried out the loss assessment, subject to observance of procedure for salvage disposal.The amount realized through salvage disposal will be set off by insurer against losses paid by them.

Q. I want to cover my goods against transit risk.What policy do I take?

A. The Marine Cargo policy offers cover for goods against transit risks. You can take this policy if youare, for instance, transporting your household goods from one place to another. You may either opt for a ‘Basic Cover’ or for an ‘All Risks’ one. The latter offers a wider scope of coverage. Please read the terms and conditions of the policy to understand what you are buying.

Q. Who has to arrange for Marine Cargo insurance the buyer or the seller? Or do both need some protection?

A. This depends on the Sale Contract the two enter into. For each Sale Term such as Free on Board (FOB), Cost and Freight (C&F), Cost Insurance and Freight (CIF) etc, the responsibility for arranging for insurance varies.

Q. I need to cover my jewellery. What policy should I take?

A. Insurers offer ‘All Risks’ policy for covering jewellery. You must ensure that your jewellery is valued correctly and you are able to show proof of valuation should a claim occur. An All Risks policy also has exclusions, so go through the terms and conditions thoroughly.

Q. I want to cover my household goods against burglary when I am away. Can I get a burglary insurance policy?

A. A burglary insurance policy covers goods against the risk of burglary. A burglary insurance policy may also offer extension of cover against theft. A burglary insurance policy will usually cease to operate if the house is not occupied beyond a certain defined period unless you have intimated the insurance company and they specifically agree to extend the cover even when the house is not occupied. It’s a good idea to ensure that you have a burglary policy always rather than opting for one only when you are away. You might not get one if you want to insure the contents only when the house is locked.

Courtesy: IRDA Handbook on Property Insurance