Nature of commercial activity decides risk value

Published in Mint on 16th Sept 2014, Written by Abhishek Bondia

I have read that with regards to home insurance, the claim can get rejected if there are commercial activities happening in the premise. Does this mean that if I offer tuition in my house, my claim can get rejected?
—Sanjay

The type of activity conducted in a place directly affects its risk value. For instance, within the same mall, a restaurant is considered to be three times riskier than a grocery shop. It is critical to provide full disclosure about the activities undertaken and have this acknowledged by the insurer. Incomplete information gives an insurer grounds to reject a claim.
In your specific case, the standard risk profile of an educational institution and usual residence is same. Hence an insurer should not argue that the risk was not priced appropriately. In any case you should disclose it in the proposal form to avoid any future dispute.

I had insured my television for Rs.30,000 and it stopped functioning recently. Upon making the claim, the insurance company only paid Rs.10,000. Why is this so?
—Arif Baig

The reason for a lower payment is likely to be the type of cover you had taken and the standard deductibles. In standard fire insurance, apart from the sum assured it is important to choose the basis of claim settlement. It can be reinstatement, market or agreed value basis. If nothing is mentioned, the default is market value. Under this approach, assets are insured for depreciated value and the claim settled after deducting depreciation on the damaged asset. You may have over-insured the television, got the claim settlement after deduction of depreciation and had some standard deductibles removed, hence the gap.
Under the “reinstatement value” approach, the cost of replacing with a similar asset is paid. Reinstatement value is the most common approach followed by companies to insure their assets. Under the “agreed value” approach, the sum assured is taken as the basis for claim settlement. The sum assured is mutually agreed upon with the insurer, often backed by an independent valuer’s report. Agreed value approach is used primarily for antique art and paintings.

Is there any time limit for the settlement of claims under a householder’s policy?
—Diganta

In case of a claim under a householder’s policy, you need to inform the insurer immediately but no later than seven days. On receipt of notice, the insurer will appoint a surveyor to assess the loss. The surveyor lists the documentation requirements to the insured. After submission of all necessary documents, a surveyor typically submits his report within a month. The insurer on receipt of the report, if satisfied, settles the claim within a month.

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