Nothing is as good as it sounds, and nothing is as bad as it sounds either, say the wise ones. In many instances, this holds good for insurance as well, with this financial product being particularly opaque and misunderstood.
The product is basically a legal contract promising an intangible benefit at a future date should a specified event take place. So, the layer upon layer of puzzlement induced by it is only to be expected.
It is often said in the context of insurance, that the big print giveth and the small print taketh away. Let us look at some of the big and small print that is somewhat misleading and confounding. Here is a term that sounds bad in insurance, but isn’t.
While risk is bad, in insurance the word refers to something that is covered. So that is good, right?
A life policy covers the risk of dying too soon, a pension policy covers the risk of living too long. Fire policies cover fire and allied perils, while hospitalisation policies cover the costs of hospitalisation. Since insurance presents the solution to managing risk, it has a positive connotation.
‘All-risk’ policy
Here is a related term that sounds good, but doesn’t add up in practice.
The all-risk policy, typically covering construction and also fire and allied perils for large industrial projects, has a misleading name. Its breadth of cover is that it includes those risks not specifically excluded in the contract and, by that logic, standard exclusions like ‘act of god’ (an unforeseen catastrophe like flood, earthquake or storm which can’t be prevented or controlled by human beings), war or nuclear explosion are not part of the coverage and so, no, it does not cover everything under the sun, which is what we wish all insurance policies would do!
Communication is everything, as is presentation, and insurers have been trying to replace this term that puts the coverage in context. Alternative terms being used include multiple peril (meaning not all) and multiple physical risks (meaning not liability).
Easier said than done, because when it comes to a legal conflict, it is the lawyers and judges who have to be convinced.
Comprehensive policy
No. This one doesn’t cover everything under the sun either! Take your motor comprehensive policy. It means it’s a combination of the statutory third-party liability cover and the optional own damage cover. While the former is a complete cover as required by the Motor Vehicles Act, 1988, the latter covers damage or loss of your car due to fire, floods and related perils, and also theft.
The bottom line is, if you do prefer a claim, will you get the full value of the damaged vehicle or damaged parts? Shouldn’t that be the meaning of comprehensive? No. Depreciation will apply and cost of rubber parts are not partly or fully covered. The silver lining is that you can cover these by paying additional premium, but obviously not after, an accident.
‘Not comprehensive’
Many policies have a compulsory deductible, a flat sum or percentage of each claim that you should pay out of your pocket. Decidedly not comprehensive!
Check your motor policy and you will find the sum insured is called Insured Declared Value (DV). In other words, the value for which your vehicle is insured is agreed upon at the time of insurance.
It may indicate that the value was declared by you, the insured, but in reality, the insurance company tells you the value of the model and make of your vehicle from a depreciation chart it has.
Even then, at the time of a claim, further depreciation for that year or part of the year will be applied and you will rarely get the full insured value of the whole car in case of a total loss or damaged parts in case of damage.
So, the IDV is only the maximum value payable and depreciation goes on ticking, somewhat like the writing hand that keeps moving on.
(The writer is a business journalist specialising in insurance & corporate history)
