Property Insurance - Policy Holder

Property Insurance

Question: What are the requirements to purchase a property insurance policy?
Answer:  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.

Question: What are the different types of Property Insurance Policies?
Answer:  Bharat Griha Raksha, Bharat Sookshma Udyam Suraksha, Bharat Laghu Udyam Suraksha and Standard Fire & Special Perils Policy provides cover for properties against fire and allied perils such as flood, riots, lightening, impact damage etc. Further, loss or damage to assets due to burglary and theft can be covered under a Burglary & House Breaking Insurance Policy. Valuables can be covered under All Risks Policies and there are package policies for house owners and shopkeepers.

Question: How does one fix the sum insured?
Answer:  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.

Question: What will be the cost of a fire insurance policy?
Answer:  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 laid down by IRDA), premium rates charged by each insurer may differ. However, they should have been filed with the IRDA under File & Use procedure.

Question: How does one arrive at the value of assets in Dwellings or Offices or Industries?
Answer:  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 & fixtures, clothing, bed linen, kitchen equipment, electronic gadgets and arrive at the sum insured.

Question: Why should I insure my Building? Fire can't possibly do any harm to the building.
Answer:  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-storey buildings. Floods can also bring about devastating losses. Similarly, Riots and Acts of Terrorism can also produce huge losses to human lives as well as property.

Question: Can I ask for cancellation of policy mid-term? Will I get any premium refund?
Answer:  Yes, At Insured's option: Retention of premium on short period scale and balance if any, will be refunded. At Insurer's option: Pro-rata refund of premium will be given.

Question: In case of loss, what are the obligations of the insured?
Answer:  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.

Question: If I insure for a higher value, will I get a higher claim amount?
Answer:  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.

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

Question: 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?
Answer:  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.

Question: What is the relevance of salvage?
Answer:  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.

Question: I want to cover my goods against transit risk. What policy do I take?
Answer:  The Marine Cargo policy offers cover for goods against transit risks. You can take this policy if you are, 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.

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

Question: I need to cover my jewellery. What policy should I take?
Answer:  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.

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

Question: How do you define Small and Medium Enterprises (SME)?
Answer:  The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under: (a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below: (i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh; (ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and (iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

Question: Why buy Property Insurance?
Answer:  If you are an SME, an entrepreneur or having any small or medium enterprise, you could look for a package policy that offers coverage against all your insurance requirements. It can also provide coverage under Workmen’s Compensation Act including coverage of accident and health insurance, fidelity guarantee, public liability, Money in transit insurance etc.

Question: As an SME, What property insurance can I buy?
Answer:  There are a variety of insurance policies covering different kinds of risks like fire, flood, earthquake for the building and contents, sudden breakdown of your machinery or damage to the Electronic Equipment in your office, Workmen compensation, Public and Professional liability, Money-in-Transit, Fidelity Guarantee etc. You can choose the limits of Sum Insured for each section of coverage offered depending on the insurance needs of your enterprise. It could also include employer’s benefit policies such as Group Personal Accident and Group Health Insurance etc, all under a Comprehensive package insurance policy. For further details on property insurance, please refer to the sub-menu on Buying Property Insurance

Question: I am an exporter registered as SME and my overseas buyer requires me to have a Product Liability insurance cover? Can I get such covers in India?
Answer:  Yes. Such covers are available in the Indian Insurance market and you may purchase them from any one of the non-life insurers offering such products.

Question: What is insurance on first loss basis? When can I take insurance on first loss basis?
Answer:  If there is no possibility of total loss, the Sum insured is arrived at based on the maximum loss that is likely to occur at any one time on first loss basis. For e.g. theft of huge machinery, bulk drugs, works of art etc. The difference between insurance on full value and first loss basis is that in case of the former, if the losses exceed the Sum Insured, the condition of average will apply whereas in case of first loss sum insured, even when the loss exceeds the sum insured, the liability remains upto the agreed Sum Insured without applying condition of average. E.g. A burglary insurance policy against Fixed Plant and Machinery of enterprise can be taken on First loss basis.

Question: What is condition of Average?
Answer:  In case of insuring the property for a value less the actual value, then, in the event of claim, the losses are also to be shared to that extent of underinsurance proportionately.

Question: What is meant by Machinery Breakdown coverage under the policy?
Answer:  It means coverage against the actual mechanical breakdown or failure of machinery of the manufacturing plant. It includes distortion or burning out of equipment/ appliances either due to failure of electric supply and or fluctuation or stoppage of usage due to error/omission of the operators necessitating immediate repairs or replacement to become functional.

Question: What can be covered under Electronic Equipment Insurance? Can I include my Lap Top under such insurance?
Answer:  Though there is no standard definition of electronic equipment for taking insurance, all electronic and computer equipments, their peripherals, laptops, bio-medical, audio-visual equipments etc., (with consumption of low voltage of power without making much noise) can generally be covered under Electronic Equipment Insurance. The scope of the insurance policy could include the entire computer system consisting of CPU, Keyboards, Monitors, Printers, Stabilizers, UPS, and other moveable/ portable electronic equipments along with the value of Software as well. The coverage could be offered either on “All Risks” basis viz. driven by exclusions and covering direct physical loss to property insured by all risks except those that are specifically excluded under the policy; or on “Named peril basis” offering coverage against specific perils mentioned in the policy. There could also be cover for increased cost of working following a claim due to failure of electronic equipment under the policy. Since the policy coverage, the terms / conditions, deductibles, exclusions etc., vary from one insurer to other, you must confirm whether the policy proposed meets your requirements.

Question: What are the exclusions?
Answer:  One must read carefully the Exclusions mentioned in the policy because, the scope of insurance cover will be subject to exclusions mentioned therein. In most cases, loss, destruction or damage caused by wilful act or neglect or gross negligence, wear and tear and inherent deterioration of machinery, war and allied perils are excluded under the policy. There could also be section-specific exclusions that are applicable for that particular section only. E.g. suicide or attempted suicide is not covered under Personal Accident insurance.

Question: What is a deductible?
Answer:  A deductible (also called excess in some policies) is that portion of claim which is not covered by the insurer. In simple terms, deductible or excess is the amount of loss which you have to bear yourself, before your insurer steps in for covering the losses under insurance policy.

Question: What are the standard fire products available in the market?
Answer:  The following are the standard fire products prescribed by IRDAI. (i) Bharat Griha Raksha (meant for Home Buildings and Home Contents) (ii) Bharat Sookshma Udyam Suraksha (meant for enterprises where the total value at risk at any one location is upto Rs. 5 Crore) (iii) Bharat Laghu Udyam Suraksha (meant for enterprises where the total value at risk at any one location is more than Rs. 5 Crore and upto Rs. 50 Crore)