Sub-limits are critical to evaluate in health insurance

Published in Mint on November 27th, 2013, Written by Kapil Mehta

Recently my car collided with a bike, due to which the person on the bike and I, both got injured. I have a comprehensive car insurance policy of Rs.6 lakh, which covers my own damage as well. I want to know how much compensation that person will get out of my policy.
—Rajinder

There are two components to your car insurance, own damage and third party liability.
Own damage will cover the repair costs for your own vehicle. Third-party liability will cover injury to the person on the bike but not damage to his bike. Moreover, there is an elaborate process for third-party claims. First, the injured person will need to put together an first information report (FIR), disability certificate and hospital expenses. A case will then need to be filed with the Motor Accidents Tribunal. This is a judicial body that will determine the fault and extent of liability. Claim payments will be made based on the Tribunal’s judgement. A report by the Insurance Regulatory and Development Authority analysed third-party injury claims and concluded that over half the claims take more than two years to get settled. Clearly claiming through third-party liability insurance is not a short-term solution for accidents.

How important is a sub-limit in a health insurance policy?
—Karthik Nair

It is a critical feature to evaluate in health insurance. There are two kinds of limits that insurers place—on the hospital room rent and the sum assured for specific diseases. The room rent cap will be expressed as a percentage of sum assured, typically 1%. For example, if your sum assured is Rs.2 lakh, then you are eligible to stay in a room with a tariff of Rs.2,000. If you choose to be hospitalized in a more expensive room then the insurer will not pay the additional room rent. They will also pay expenses in line with a Rs.2,000 room. This can have a material impact on your out-of-pocket payment as hospitals tend to charge more for treatment if you are hospitalized in a more expensive room. The disease-wise capping restricts payment in case of pre-specified diseases. I prefer insurances without any of these sub-limits because that prevents surprises at the time of claims.

What is a money insurance policy?
—Jayashree

Money insurance is generally bought by businesses. It covers the loss of money at the insured’s location or while in transit. It is a good insurance to buy if you need to keep or move cash frequently. Money insurance becomes much more meaningful when it is purchased with a fidelity extension. This extension ensures that theft or fraud by your own employees is also covered. This risk is typically excluded unless you specifically ask for the fidelity extension.

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