Published in Mint on Nov 02 2016, Written by Abhishek Bondia
For my home insurance policy, my insurer has proposed a first loss policy for burglary coverage. What does this mean? Should I buy this?
—Sahil Bagga
A first loss policy is common for burglary and theft policies. When it is unlikely that the complete sum insured can be claimed due to the insured event, a first loss policy helps save premium for the insured.
Under a first loss policy, the maximum claim amount payable to the insured is the amount stated as the first loss. If the loss amount is more than the first loss amount, that is to be borne by the insured.
Evaluate whether to buy a first loss policy or not based on the amounts involved and the items insured. For instance, if the aggregate sum insured is Rs100 crore for a steel godown, then a 20% first loss policy works well, as it is improbable that a Rs20 crore burglary of steel would happen. But if the amounts are relatively small, say, Rs5 lakh, I will not recommend that you further limit the coverage through a first loss insurance.
I am an independent director in a non-listed firm. With increasing scrutiny of independent directors and putting responsibility on them for lack of oversight on executive actions, I am worried about how to protect myself. I have heard about some policy that provides for directors’ liability. Is there a solution for this?
—R.K. Kathuria
Yes. The policy you are referring to is called ‘directors and officers’ liability insurance. The company concerned can buy this policy to protect its board of directors and key officers. In fact, most independent directors insist on putting this policy in place before accepting the position.
If a lawsuit is brought against a director for an act of negligence or mal-intention related to the company, then this policy is invoked.
The policy pays the lawyer fees to defend the director in court and any compensation awarded by the court. This is subject to the fact that the negligence should not be wilful. Several policies provide covers to non-executive directors, even after they step down from the board, for alleged actions during their tenure.
While renewing my car insurance policy, I got a renewal quote that is 30% lower than my existing insurer’s quote. Are there any long-term benefits of continuing with the same insurer? What is the process of portability?
—Ashok Sinha
Motor insurance is a one- year policy. You can change insurers at the time of policy renewal without losing any benefits from the previous insurance.
The main carry-over benefit is the no-claim bonus. Your existing policy may carry a no-claim bonus, which will increase if you did not make a claim in the previous year. If you present these facts to the new insurer, it will extend the no-claim benefit to you.
Unlike health insurance, there are no waiting periods in motor insurance.
So, there is no separate portability process. The new insurer may ask for your car registration copy, last year’s policy copy and a declaration about claim status in the previous year. Sometimes, renewal notice of the expiring insurer is also sought to confirm claim status.
I am confused between term life and personal accident insurance policies. Which one would you recommend? I am a 30-year-old software engineer working in a multinational company.
—Ajith Warriar
Term insurance and personal accident policies cover different risks albeit with a little bit of overlap.
Death due to accident is payable under both policies. Other than accidental death, a personal accident policy covers different levels of disability due to accidents.
Disabilities include permanent total disability such as loss of both limbs and partial permanent disability such as loss of a single limb. Further, a personal accident policy reimburses medical expenses to treat disability resulting from an accident. It would cost about Rs18,000 for a Rs1-crore cover.
Unlike term insurance, a personal accident policy has several exclusions.
For instance, accidents under the influence of alcohol or during adventure sports are not covered.
I recommend term insurance as the primary cover for you. This could then be supplemented by buying a personal accident policy to cover disabilities.
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