Erroneous buying of insurance policies — whether you are misled by the seller or managed it on your very own by being less than diligent —leads to hardship. You have paid for some perceived protection and find it is not all there at the worst possible moment, when a loss occurs.
Many readers’ queries at this time of the year are about which policy to buy so that the premium can be paid before the financial year to avail of tax benefits. Such purchases, driven by deadlines or by benefits not related to insurance, can turn out to be poorly-thought through.
A typical, rushed decision is when your vehicle policy is urgently due for renewal. Much has been written about remembering your insurance renewal date. Yet, this often becomes a sudden emergency in the one week, or even the one day, before your policy expires.
A straight renewal of what you already have may be safe and that is what any intermediary will push for with a tight deadline because the fact is, that is the simplest way to get the renewal done.
You don’t have the time to pay attention to whether the insurer is offering you an appropriate insured’s estimated value (IEV), the sum insured for your vehicle policy or the optimal cover you should have. Moreover, you may be missing out on opportunities to fine-tune your cover. You may want to add a breakdown towage cover or no-depreciation cover which are becoming popular, but there would not be time to get a quote through the system with only a day to spare.
You may want to opt out of some extra covers that you find are no longer meaningful. Believe me, there is a long list of interesting options you can choose from and you should be reviewing these at each renewal.
If you have a payment constraint, you may wind up opting for a third-party-liability-only policy, thus leaving yourself wide open to own damage losses. TP liability cover premium is fixed by a tariff but own-damage cover has some bargaining leeway and you can shop around among companies, even using the Internet, for better rates.
Home insurance
Home insurance policies also have important decisions you should apply your mind to. In your drive for better premium rates, be wary of intermediaries who offer discounts by cutting out covers. This used to happen with home fire policies, with flood cover being dropped to present a lower premium. Luckily, now flood cover is an integral part of fire cover.
Here, too, there are interesting add-ons. You should neither ignore nor allow them to be included without your express approval. I found a public liability cover that made sense because I was remodeling a home a while ago.
Home insurance as a part of a home loan package also deserves attention. The policy is usually co-terminus with your loan. Check what the value covered is. Is it the value of the property or only the loan? How this policy works is it will be assigned to the lender to the extent of the loan and, should there be a fire, on assessment of the loss, the claim will be paid first to the lender to the extent of the outstanding loan and only the reminder to you. Which is appropriate because your home loan will be extinguished at least in the face of a fire loss.
An important part of home insurance for you will be cover for contents against fire and burglary, and the policy that the home loan company will arrange is unlikely to cover this.
Please do talk to your lender and the insurer for getting this cover added on. If it’s not possible, ask if you can get a different policy with fire and burglary cover for contents. You should be able to, because this is available even to tenants. You can get this policy from a different insurer too, disclosing the existence of the fire cover on the building, related to your home loan.
(The writer is a business journalist specialising in insurance & corporate history)
