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Insurance: Rest assured, your assets are secure

With the prevalent uncertainty of life, the only way to have peace of mind is to get adequate protection, through buying an insurance.

business Updated: Apr 02, 2004 13:16 IST

Nilanjan Bose, an IIMC graduate, parked his Fiat Palio outside a restaurant in Park Street while he went inside to have lunch with his friends. Fifteen minutes into his lunch he was informed that his car was on fire.

Rushing to the scene Nilanjan found that sparks from the car parked behind his Palio had scorched his rear bumper and left side of the vehicle. The damage amounted to Rs 10,000. Though his car insurance covered the expenses (partially), but the fact remains that life is unpredictable.

Accidents, as any reader of crime fiction knows, can happen even in the best-regulated circumstances. Curiously, however, few people have meaningfully addressed and taken cover to protect themselves against the risk of personal accidents, the medical complications they entail or the risk of losing expensive articles bought with their hard-earned money.

It takes a lot of time, energy and hard work to buy a home, build a comfortable lifestyle and accumulate wealth. The problem is that fire, burglary, accident or any number of unexpected events can lead to huge financial loss.

With the prevalent uncertainty of life the only way to have peace of mind is to get adequate protection. More than just protection and peace of mind, insurance is about time and money. Not having insurance could decimate your life savings and put your plans for building assets for the long term on hold.

The fact is that if things are not insured they are at risk and that means you are at risk of losing them. Probably forever! That’s a high price to pay especially when it costs so little to protect the things that are important to you, your family and your future.

Before we understand the details of general insurance, let us comprehend the concept of risk-management.

Risk management
The term risk management normally means the use of alternative methods of dealing with risk. In its simplest form, risk management consists of knowledge of the existence of various forms of risk and their magnitude and the management of the various methods of dealing with those risks. The ultimate goal is the recognition and control of risk. One of the basic risk management techniques is known as "Risk Transfer." This consists of any measure by which the risk of one party is transferred to another.

"Insurance" is the most important type of transfer device and is usually defined as the transferring of risk to a third party (the insurance company) in return for the payment of an amount of money (the premium).

The insurance principle
Not all risks are insurable. In fact, most of the risks we are exposed to in daily life are insignificant and do not involve serious financial consequences. However, there are many potentially serious events, such as fire, automobile accidents, robbery, death and disability that can cause substantial losses when they occur. These are the risks that insurance protects us from.

In essence, insurance is a means of eliminating or reducing the financial burden of such risks by dividing the losses they produce among many individuals. It is a hedge against the occurrence of unforeseen circumstances. It not only mitigates risks but also helps you by providing a financial cushion against adverse financial burdens suffered. Philosophically we can also say that, in the darker moments of life, general insurance shows us the right direction towards security and happiness.

Umbrella for…
While the risk of the life of the breadwinner of the family is taken care of by the "life insurance policy" rest of the risks like accident, illness, fire etc. are taken care of by the "general insurance policies."

However, one should remember that general insurance is not meant to offer returns but is a protection against contingencies. Almost everything that has a financial value in your life and has a probability of getting lost, stolen or damaged, can be covered through insurance. Property (both movable and immovable), building, vehicle, cash, household assets, health, people and also your liability towards others can be covered. The "risk" coverage under general insurance includes: destructions or loss of property due to fire, accident, breakdown, riots, strikes, terrorism, natural calamity (like earthquake, flood, storm, tempest), risk of illness, accidents, liability, burglary, theft and transit risks.

The vital why
Don’t just get talked into buying insurance. Ask yourself why you need to insure now. If you aren’t covered because you think you have enough assets to feel safe, then it’s time you insured those assets. Your house could be robbed tomorrow, or your car smashed up in an accident. Agreed, no one wants to think of dying or being robbed, but better safe than sorry, right?

An insurance policy, with minimum coverage for third-party damage, is not just required by law it is common sense. It not only clears your liabilities in case of an accident, it protects third-party interests. Imagine my trusty old bike running into my neighbor’s brand new Merc, for instance. The replacement cost of his rear-view mirror alone would be more than the value of my two-wheeler and, thus, by extrapolation, more than my possible capacity to repay.

The insurance company, however, has collected small amounts of premium from me and much more from the Merc owner, not to mention dozens of other vehicle owners who don’t have accidents. So the company is able to cover both of us for our losses.

Hence, it is wise to get your precious assets insured.

What’s the right amount?
Determining the amount to be insured is a tricky business. If you over-insure, you end up paying more than necessary premium. If you under-insure, you are exposing yourself to proportionate compensation when a claim arises. Both situations have to be avoided.

Building should be insured for its present day cost of construction. Same type and quality of the building, as at present, multiplied by the covered area determines the actual cost. As long as you are insured for the correct re-instatement value on the date of loss, no depreciation will be deductible from the claim amount irrespective of the age of the building. Value of land must be excluded. Value on foundations may be retained for the add-on "earthquake" cover.

As far as household effects for fire, allied perils and theft risks are concerned; they are to be insured by applying the principal of present day values of same/similar items minus the physical depreciation for number of years use (insurance claims are determined on this basis). However, for items of art/antique values, insurance can be done on agreed value basis.

For "breakdown" cover on electrical and electronic items, the value to be proposed for insurance has to be the present day replacement values (as if new) and claims if any for total loss are payable as if new. No depreciation is deducted even though you would have used the item for any number of years. For "household" effects, it is no longer necessary to submit a detailed list of household items to be insured. The insurance companies are willing to accept a lump sum value subject to the proviso that any one article exceeding five per cent of the total sum insured will be listed in the proposal. For example, if you feel a sum of Rs 5 lakh represents the appropriate total sum to be insured; you have to list out only those items specifically, which are individually above Rs 25,000.

Types of insurance
Before we venture into the intricacies of the different general insurance policies provided by General Insurance Corporation and other private players, let me inform you that this is just an overview of personal line insurance policies. Space constraint has restricted our travel into the depths of general insurance, which is very vast.

Burglary insurance policy
This policy is suitable for people who have movable household property (clothes, appliances, other personal effects etc), which are prone to burglary, theft or larceny. Also offices, warehouses and shops can take this policy as it covers cash in safe or strong room apart from covering contents in the premises. This policy covers burglary, housebreaking, theft and larceny. It pays for any loss of property due to burglary occurring during the policy period. The amount of claim payable would be limited to the sum insured or market value at the time of loss whichever is lower. Apart from compensation for the stolen property, the burglary policy covers damage to the premises likes walls, doors, windows, locks, bolts, etc. The premium payable under the policy depends on various factors like the location of the premises, type of construction, neighborhood, easy access, etc.

Overseas mediclaim insurance policy
Nothing interferes with plans for a holiday overseas so starkly as ill health while on foreign shores. Herein comes the concept of Overseas Mediclaim insurance policy. This Policy is suitable for any Indian resident traveling abroad. Overseas Mediclaim is, in any case, mandatory if you’re travelling to the United States, Europe and a few other countries. But even where it is not required by law, it makes sound sense to pack this low-cost, high-value medical cover-along with your beach-bum outfit and your holiday attitude.

Up until a few years ago, you could buy Overseas Mediclaim policies only from the four public sector general insurance players — National Insurance, Oriental Insurance, New India Assurance and United India Insurance. Since then, three non-life private insurers — Royal Sundaram, Bajaj-Allianz and Tata-AIG — have begun to offer value-added "travel insurance" packages. In addition to offering Mediclaim facilities, these cover other travel-related risks — loss of luggage or air-tickets or passport, flight delays and even hijacks. The premium you pay depends on your age, number of days of proposed travel and the countries to which you plan to travel. You have to pay a markedly higher premium for travel to the US and Canada.

The plain-vanilla Overseas Mediclaim Policy covers your hospitalisation and medical expenses up to the sum insured for 45 days, subject to certain conditions; it also provides cover against in-flight accidental death and for loss of passport. Typically, a 30-year-old would pay Rs 1,630 as premium for medical cover up to $50,000 for 45-day travel that takes in the US and Canada. A corporate frequent traveler can take a single policy for one year. The insured is covered for a specified number of days abroad, irrespective of number of visits. The total coverage during the year is normally restricted to 180 days, this may vary from Insurer to Insurer, and the maximum number of days under each visit normally is made limited by every insurer.

Policies under overseas mediclaim policy
The Travel Protector Policy offered by IFFCO TOKIO is offered in two variants viz., Specified Trip basis, and Annual Cover basis. While former covers the insured for a single trip, the later cover all the trips an insurer takes during the period of insurance.

There are five plans available under Single trip cover - Gold 500, Gold 250, Gold 100, Silver and Bronze. While the Gold plans provide worldwide coverage, Silver and Bronze plans exclude USA, Canada, Switzerland. The Period of Insurance in case of the specified Trip Policy and in case of the Annual Cover is a maximum of 30 days and 45 days per trip.

The Travel Guard offered by TATA-AIG is available in three different plans: Plan A, Plan B, and Annual Multi-Trip Plan. Plans A and B are single trip plans, where the overseas stay does not exceed 90 days. On the other hand, the Multi-Trip Plan has been designed specially for the global traveler. Under this plan one can travel abroad as often as one desires and you will be covered provided each trip does not exceed 45 days.

The Travel shield offered by ROYAL SUNDARAM is available to the individual in two plans - Gold and Extra. In addition, Plus is offered for people travelling frequently on business and pleasure. The total coverage in this plan is restricted to 180 days in a year subject to a maximum of 45 days per trip.

The Travel Companion offered by the Bajaj Allianz is available to the individual in three forms - Travel Care, Travel Secure and Travel Value. Families can take a "Travel Family" policy covering parents and two children below 21 years of age. Corporates have the option to choose from Corporate Lite or Corporate Plus. The total coverage in this plan is restricted to 180 days in a year subject to a maximum of 30 days per trip.

Medical insurance policy
Many argue that a health insurance premium is a waste of money. The wisdom of putting one’s money in something remunerative seems unquestionable — until something nasty happens. But there are compelling reasons to "waste" your money — and sooner, rather than later. The cost of medication has gone up over the years. Health risks increase with age. The longer you put off buying medical insurance, the more expensive it will be, because premiums are higher for older buyers. A cardiogram costs Rs 300, and heart surgery, up to Rs 5 lakh. And patent laws are only going to spur already rising medical costs. The only way out: medical insurance.

Here are the options:
Mediclaim:
A product of the General Insurance Corporation (GIC). Anyone between five and 75 years can buy a policy and claim reimbursement for hospital or ‘domiciliary’ (treatment at home) expenses up to Rs 3 lakh. The first claim can be made 30 days after buying the policy. The policy is available from GIC or its subsidiaries — Oriental Insurance, National Insurance, New India Assurance and United India Insurance.

Private marketers
You can also buy versions of Mediclaim from private GIC agents like the Calcutta-based Medicare Services. Such firms get discounts from the insurers, which they pass on to customers in the form of benefits like ambulance services and standard premiums that don't increase with age.

Tie-ups with hospitals
Medicare and Mumbai-based Paramount Healthcare Management Company have tied up with several hospitals across the country. You don't have to settle the bills at any of these hospitals, so no scramble for funds when it’s billing time, or the 45-180 days wait for reimbursement.

Paramount Healthcare operates the same way, though it does not sell policies (you have to have a Mediclaim policy, and pay Paramount a yearly fee of Rs 250 for its services).

If you are below 45, annual premium is Rs 2,825 for a maximum cover of Rs 3 lakh. It goes up to Rs 4,030 for someone between 46 and 55 years, and Rs 4,635 for 56-65. And so on. Insuring early does not really change your premium outgo, but it makes sense because every claim-free year raises your cover by 5 per cent.

New India’s policy:
The New India Assurance Company has introduced a few variations of Mediclaim. The Tertiary Care scheme covers only major expenses, including renal failure requiring a kidney transplant, cerebral or vascular strokes, heart surgery, encephalitis, neurosurgery, liver disorders and serious injuries like multiple fractures. The maximum cover is Rs 5 lakh.

The Long-term Hospitalisation and Domiciliary Insurance policy is more generous — in addition to normal group Mediclaim benefits, it offers benefits like bearing boarding and lodging expenses of a relative, hospitalisation and surgery expenses of an organ donor, ambulance costs, and hospital registration and admission fees. The maximum cover is Rs 5 lakh.

LIC schemes:
Jeevan Asha and Asha Deep II are primarily life insurance plans, but also cover cornea transplants and certain surgical procedures for nervous, respiratory, cardiovascular, digestive and endocrine disorders.

After three years, Jeevan Asha offers 2 per cent of the insured sum every other year for a health check-up. Or if you prefer, you can opt for an enhanced lumpsum benefit for future emergencies. Also, once during the term, you get 20-50 per cent of the assured sum if you undergo surgery. When the policy matures, you get the assured sum.

Asha Deep offers cover against only four major ailments: cancer, a paralytic stroke resulting in a permanent disability, failure of both kidneys, and coronary artery disease requiring bypass surgery. If you have to have treatment for any of these, you get half the assured sum right away, and further premiums are waived. You also get 10 per cent of the insured amount every year, till the policy matures. At which time, you get the rest of the insured sum plus bonuses.

Motorcar insurance policy
You need your car. You probably depend on it every day for work, shopping, getting around, just about everything. Imagine if you purchased a brand new car and it was badly damaged by another vehicle. You would not only be out of pocket for what you paid, you would be without transportation too. Your vehicle is an integral part of your family and if your car is involved in an accident, the financial loss and the loss of mobility can be stressful.

With the increasing number of accidents on roads and the surging costs of repairs, Motorcar Insurance Policy is very much recommended for every owner of the vehicle. Further one should possess a valid "Liability Policy" to use a motor vehicle in a public place, as it is made compulsory by the provisions of Motor Vehicles Act 1988. The Policy is divided into two parts —Policy A and Policy B.

Policy A (Act Policy) covers risks that are required to be covered under the Motor Vehicles Act. It is mandatory that every car owner be covered against Act Risks under Section 146 of Motor Vehicles Act 1988. The scope of cover is to pay compensation for death of or bodily injuries to third parties and damage to the property of third parties up to specified limits. While the insured is treated as the first party and the insurance company second party, all others would be third parties.

Policy B (Comprehensive) covers all the risks of Policy A (Act) as well as the loss of or damage to insured vehicle against other perils. The perils covered are damage to vehicle by accidental external means, fire, lightning, explosion, self ignition, burglary, riot & strike, malicious acts and terrorist acts, earthquake, flood, inundation and cyclone.

Personal accident insurance policy
The purpose of this insurance is to compensate for death or disability resulting from accidental injuries. Compensation is directly linked to the sum insured according to the degree of disability. Death is also covered in life insurance but in personal accident, death cover is due to accident only, therefore, the cover here is very inexpensive. For example, ordinarily, it costs only Rs 45 as annual premium to insure oneself for Rs1 lakh. For widening the scope of cover to include permanent or partial disabilities, the total premium would become only Rs100 per annum. It is also possible to include loss of earnings by opting weekly compensation benefits, when the total premium becomes Rs 150 per annum for a number of occupations.

Private insurers offer a range of riders that can be attached to a base life policy to cover the risk of your becoming disabled — either permanently or temporarily, totally or partially — following an accident. A healthy 30-year-old male would pay an additional premium of between Rs 100 and Rs 174 a year for every Rs 1 lakh sum assured for a 20-year rider. The riders, however, come with many restrictions. For instance, the sum assured on a rider cannot exceed that on the base policy (except with two insurers: ICICI offers a higher sum assured on a case-to-case basis; and on OM Kotak Life’s Permanent Disability Benefit rider, the sum assured can be twice that on the base policy, subject to a maximum of Rs 10 lakh).

Additionally, once a claim is made on such a rider, it ceases to exist and cannot be bought again, although the base policy will remain in force. Also, insurers differ on precisely how they define "permanent disability" or "partial disability," so it’s best to question them closely on the exclusions and specifics of the riders.

Also, get a fix on the claims settlement schedule, which varies with insurers. Some of the riders provide for a waiver of premium on the base policy in the event of permanent total disablement or for waiver up to a certain period in the case of temporary disablement. Useful as this provision is, it’s not quite the same as a cover that'll compensate you for the loss of livelihood for the period you're not able to return to work. That's not to say no private insurer offers a policy that provides periodic compensation for the period of disablement.

Tata AIG’s Secure Income Plan provides for a lumpsum on the death of or serious injury to the policyholder, and for continuing financial support for up to five years thereafter. Typically, on a Rs 10 lakh cover, available for an annual premium of Rs 1,575, your family will receive up to Rs 1 lakh on your death or serious disablement following an accident; thereafter, your family will receive Rs 15,000 a month for five years.

Policies under personal accident insurance
People in the age group of 18-65 years can opt for Personal Accident Insurance offered by BAJAJ ALLIANZ. The minimum Premium under the plan is Rs 500 and the cover is normally restricted to 70 times of the Insured monthly average earnings. In case of TATA-AIG Executive Guard the limit is 21-65 years and it can be taken in multiple units of Rs 10 lacs up to Rs 1 crores. The Accident Shield offered by ROYAL SUNDARAM is a package policy, which provides cover between the age group of 18-70 years. The Policy offered by the Public Sector Companies covers the age group of 5-70 years. People beyond 70 years can be covered by suitable loading to the premium.

Householders Insurance Policy
Your home is probably your biggest investment and your most valuable asset. It is also your security for the future. That's why you can’t afford to put it at risk. When choosing insurance for your home and contents its important to feel that your assets are protected and you have a cost effective policy that meets your specific needs.

It is a myth that insurance for your properties is expensive. Consider your house that has taken lakhs of your savings. It costs less than Rs 5 per month for every lakh to insure against almost all the possible risks, including an earthquake! And insurance of your household costs you just Rs 25 per month for every lakh, against almost all the conceivable risks, including theft. And do you know that just smoke damage due to a fire, let alone fire damage itself, might cost you thousands of rupees.

This policy is suitable for all householders. It covers the various risks and contingencies faced by householders and provide protection for property and interests of the insured and his family members who permanently reside with the insured. All the householders’ insurance needs are addressed and covered by a single package policy, which is offered at economical rates of premium. This is a package policy, which generally includes covers like the Fire Insurance of the building and contents (house hold contents). Insurance of contents against fire risks is compulsory and a minimum of the specified other covers are to be selected for issue of this package policy.

The other sections are normally burglary, house-breaking, larceny and theft, all risks insurance for Jewellery, ornaments and other valuables, plate glass insurance, break down of domestic appliances (electrical and mechanical failures), television including VCR & VCP and music systems, pedal cycle insurance, personal baggage insurance, personal accident etc. The covers offered in this package policy may vary from Insurer to Insurer.

Under this policy a minimum number of specified sections have to be opted. Premium discounts are available if more than the prescribed sections are opted under the policy. This policy offers convenience and eliminates the need to take various policies covering different risks/contingencies faced by householders and hence is recommend.

First Published: Jan 17, 2003 18:32 IST