Insurance footnotes you wish you had read earlier

The thing about insurance is that you realize its value (or lack thereof) only at the time of making a claim. A claim denied or not fully paid for a reason that you were not aware of may really hurt. I get such complaints regularly. Here are some conditions, footnotes and caveats that you should be aware of, which can prevent considerable heartburn at a later stage. Address these issues by asking the right questions while buying an insurance policy rather than discovering them when making a claim.

Burglary insurance doesn’t 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 a theft and not burglary. A case is that went to the Guwahati ombudsman for judgment illustrates the plight of a customer who did not realize the difference between burglary and theft. The ombudsman wisely awarded the claim to the insured.

Burglary insurance will cover theft only if this is explicitly mentioned in the contract. Theft insurance is more expensive but still worth purchasing because it makes your insurance cover practical.

Stolen vehicles are covered if you have original keys

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 is stolen.

A senior, retired naval officer’s car was stolen when he left the key in the ignition and went inside his home to get a bag. The theft took place in broad daylight and in the presence of several drivers. Nobody realized that the car was being brazenly stolen. Despite repeated appeals, the insurer denied the claim because the officer could not produce the original keys. The case went to the ombudsman, where the naval officer made a stirring speech on how he had fought three wars for the country but lost the battle with our own insurance companies. Thankfully, he won the judgment.

Fire insurance’s sum assured reduces each year

Consider a case where you purchase a home insurance for Rs.1 crore and renew it each year. In the fifth year, your house burns down. You would expect to be paid Rs.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 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 cover not so high

Doctors, lawyers, chartered accountants are the most frequent purchasers of professional indemnity insurance. They pick their sum assured based on the amount of risk they may be exposed to 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 liability that an insurer will pay in any one incident. 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 taken. 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 cover than he actually thinks he has.

Limits of this kind have been at the heart of insurance related litigation related to 9/11 events. Insurers have argued that the fall of the two world trade towers is one single event and so should be subject to the AoA limit of $3.5 billion. The insured has argued that these are two discrete events and the entire claim of $7 billion is payable.

I would advise you to keep your insurance simple and ask for a per-accident sub-limit that is equal to the total sum assured, which means an AoA:AoY ratio of 1:1

Pre-existing diseases you were unaware of can also create problems

Medical insurance claims can be denied if the insurer determines that it was a pre-existing disease, even if you were not aware that you had the disease when you purchased the insurance. I find this unacceptable. How can you be denied a claim for something that you did not know when you bought insurance? The importance of specifics in pre-existing disease classification is poorly understood. Contrast this to the US, where the definition and restrictions around pre-existing diseases have been actively debated by the presidential candidates as part of their policy promises.

This is not an exhaustive list of conditions to be aware of. There are really three points that I would like make—ask a lot of questions before you write the cheque, read the policy document carefully and don’t hesitate to push back the insurer who denies your claim.

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