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Cover story of general insurance products

The Economic Times, 07 September, 2008

Hurricane Mitch. The Asian tsunami. Gujarat and Pakistan earthquakes. The Mumbai deluge. And now the Bihar floods. True, despite mankind's best efforts to make the world a better place to live in, there's little escape from nature's fury which sometimes not only leaves thousands dead but renders millions homeless as well. Worse, natural catastrophes are striking with greater frequency today than at any time in recent memory. For instance, in the past decade alone, the direct losses from natural disasters are said to have reached a $1 trillion, 20 times higher than five decades earlier. And by one World Bank estimate, one-third of India's 603 districts are today hazard-prone, placing about half the country's economy potentially at risk. However, more than economy, it's the lives and properties of millions and millions of people which are at stake and need protection from natural disasters. It goes without saying that the loss of human life can never be compensated, but the financial shocks from unforeseen eventualities can easily be absorbed just by taking adequate and the right insurance. The good news is that most of the general insurance products being offered in the market today have sufficient cover for all kinds of perils that arise out of force majeure and natural calamities. So whether it's flood, earthquake, storm, cyclone, fire or riots, among others, there's cover for all. Thus, while individuals can protect their homes, self and vehicles by taking householder's insurance, personal accident policy and motor insurance, respectively, fire and project insurance with earthquake extension may be a suitable option for business houses. Similarly, while shopkeepers insurance policy can be taken to protect one's shop, villagers can take weather or crop insurance to protect their crops. Of all these, householder's insurance is the best bet to safeguard the most valuable asset of your life - your house - because "it not only covers the structure of your home but also all its valuable contents from different kinds of perils such as earthquake, terrorism, flood, burglary and house-breaking,"says Ajay Bimbhet, MD, Royal Sundaram Alliance Insurance Company. Coverage for structures and buildings, for instance, pays for all the expenses related to the insured house's rebuilding or repair, while coverage for home contents protects your personal belongings, household items and furniture in case they are destroyed or damaged by one of the disasters you've been insured against. Besides you can also get liability coverage, among others.

As a package policy, a householder's insurance covers a combination of risks spread over 10 heads such as fire & allied perils, burglary & house breaking, all risk, plate glass, machinery breakdown, electronic equipment, pedal cycle, baggage, personal accident and public liability. While fire, lightning, explosion & implosion, riots, storm, cyclone and flood & inundation, among others, are covered under the head fire & allied perils, for instance, loss of or damage to jewellery and valuables caused by accident or misfortune while anywhere in India is covered under the all risk section. Thus, if you want, you can also take individual policies like fire and allied perils and others to get limited cover. "However, it is advisable to take a package policy rather than managing so many individual policies as it is very difficult to predict which natural disaster will strike you first. Also, in a package policy we have the option to choose the number of sections required (minimum four out of which fire and burglary are compulsory)," says Pavanjit Singh Dhingra, V-P, Prudent Insurance Brokers. Another advantage of a package policy is that by mixing and matching the sections, you can get the best mix of covers you need. Also, by buying cover under more than six sections, you can even get a premium discount of up to 20%. However, it is advisable not to buy a cover which you don't need. For instance, getting cover for loss of your personal baggage doesn't make any sense if you are not a frequent traveller. Similarly, the pedal cycle cover is not needed by a majority of households today.
However, if apart from your house you also want to get your shop insured, then you will require a separate policy known as shopkeepers insurance policy, which is again a package policy. "The risks that a shop is prone to are different from that of home. Hence, there is a need for a different policy. For example, in a shopkeepers package, stocks held or neon sign is covered, which is not there in a householder's policy," explains T A Ramalingam, head, underwriting, Bajaj Allianz General Insurance. "There are some common features also under householder's and shopkeepers insurance policy. Like the fire section is compulsory to be included in both the policies. But there is difference in premium rates for fire and terrorism," says Dhingra. Importantly, it is relatively difficult to get a householder's policy in rural areas as apart from the issue of availability of insurance, getting kutcha houses insured is not always possible. "A householder's policy covers your household contents only when they are kept in the building which is not made of a kutcha construction i.e., building(s) having walls and/or roofs of wooden planks/thatched leaves and/or grass/hay of any kind/bamboo/plastic cloth/asphalt cloth/canvas/tarpaulin and the like," says Bimbhet.

Although some insurers provide cover to kutcha houses with equal to or more than 100% loading, their number is very limited. Therefore, another variant of this policy, which is more suitable for villagers, is kissan package policy, which not only includes covers under householder's policy but also covers risks against livestock, cattle and tractors, among others. Likewise, crops can be covered under weather insurance, but weather insurance covers damages to crops caused only due to adverse climatic conditions and claims made due to any other reason are not entertained. "For example, claims arising out of flood and drought are covered under weather insurance, but cover against pests and diseases can be taken under crops insurance only," says Dhingra. Thus, buying the right cover can, to a large extent, ensure your piece of mind. Still some precautions are needed. For instance, apart from doing the correct valuation of your property and valuables (which should be insured on a reinstatement basis because in the event of a loss, both would have to be replaced at today's cost of construction or replacement), you also need not ignore the conditions or warranties mentioned in the policy. Simply because non-compliance of any of them may not hold the insurer liable of paying the claim and make the contract null and void!

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