Insurance – Concept and Reality

This is not an in-depth study of insurance or an explanation of its theory.

It is just a brief description of what a common person can expect and what is reasonably expected from insurance.

Insurance exists in two forms: Life and General. Here, I am referring specifically to General Insurance.

Possibilities

1. Anything related to human life can be insured.
2. However, insurance companies will only consider proposals based on practicality.
3. Currently, there are hundreds of policies available.
4. New policies come to market from time to time based on emerging needs.
5. Therefore, depending on the needs, new policies may become available over time, though not immediately.
6. Needs may arise either from the insurance company itself, intermediaries such as brokers/agents, or from the general public.

Concept

1. Insurance can be obtained for anything – In reality, insurance is not immediately available for everything. If the policy is already in practice, it will be available right away. For some needs, a policy might not exist, but based on its practicality, insurance companies may introduce policies quickly. Some needs might not be addressed immediately, but over time, based on the practicality and possibilities of insurance, policies will eventually be made available.
2. All risks/damages are covered by insurance – Not all potential risks are covered by insurance policies. What is included in the coverage and what is not is typically mentioned in the fine print of the policy. Those who cannot understand these terms should clarify them with the insurance company’s staff, agents, or brokers before entering into any contract.
3. If the cause of the damage is covered under the insurance, the full amount of the loss will be reimbursed – The possibility of this happening is very low. Various exclusions apply to all policies, and different policies have different exclusions.
4. If an accident or damage occurs, there is no specific time limit for notifying the insurance company – Depending on the policy, the extent of the damage, and the nature of the incident, the company may allow a grace period to notify them. However, it is important to inform the insurance company as soon as possible. Some policies have a set time limit for notification.
5. Once the loss is assessed, immediate reimbursement will be provided – Generally, this is not the case. Different policies have different timeframes for providing loss compensation. Some policies require the damaged property, equipment, or building to be restored before compensation is given, while others require legal liability to be established.
6. The insurance value should match the account statement value of movable and immovable assets – This is not always the case. The approach depends on the type of asset being insured.
7. No exclusions apply to policies – Most policies have a compulsory deductible, which may vary depending on the policy.

Reality

1. Properties other than stock (Buildings, Plants, and Machinery) should be insured for their Re-instatement Value, which is the cost of restoring or rebuilding the property.
2. Stock should be insured for its market value.
3. In property insurance, the insured sum should match the value of the property at the time of the incident. If the sum insured is higher than the actual value, it won’t matter, but if the sum insured is lower than the actual value, the Condition of Average (under-insurance) will apply. In such cases, the claim amount will be reduced proportionately.
4. For Buildings, Plants, and Machinery, insurance should be based on Re-instatement Value. However, the insured sum must actually reflect this re-instatement value. If the sum insured is lower than the re-instatement value, the claim amount will be reduced proportionately.
5. In the case of Liability Insurance, the insured sum will be based on two types of limits: Any One Loss Limit & Any One Year Limit.
6. For Health Insurance or Personal Accident Insurance, the insurance company must be informed in advance about the person’s date of birth, gender, sum insured, and any pre-existing medical conditions or deformities.
7. In any insurance type, all material facts that are relevant to the policy must be disclosed to the insurance company [Duty of Disclosure of Material Fact].
8. Even if all terms of the insurance policy are followed, the possibility of receiving 100% compensation for a claim is very rare. Various clauses such as depreciation, compulsory deductible, and Condition of Average (under-insurance) will apply, affecting the claim.
9. Since there are numerous insurance companies, their insurance terms & conditions are often not the same. Therefore, before entering into any contract with an insurance company, ensure that the offer is clearly understood. If possible, seek advice from professionals in the insurance field.
10. When taking insurance for the purpose of Finance/Hypothecation, do not only insure the loan amount. If the insurance value is lower than the actual value, the claim amount will be significantly reduced.
11. Understand that the information provided to any insurance company must be accurate and truthful.

Whether our venture is small or large, when accidents and losses occur, an insurance policy will be a valuable support. That is the significance and importance of an insurance policy.

VENU NATHAN
Regional Head – Kerala
Way2Wealth Insurance Brokers Private Ltd
[A Shriram Group Company]
Door# 53 and 54, 2nd Floor, CD Tower,
Arayidathu Palam Bye Pass Road
Opp: Baby Memorial Hospital New Block,
Calicut, Kerala PIN 673004
Tel: Landline 0495 402 11 99, Mobile: 94 97 44 92 93