Published in Mint on 20th November, 2017. Written by Abhishek Bondia
I have come to the US for a 3-month vacation. On my way here, the airline misplaced my baggage. I had travel insurance that covered lost baggage. However, when I contacted the airline counter they offered to compensate me for the loss and paid me $500. Am I still eligible to file a claim for lost baggage from my insurer?
—Harish Kumar
No, insurance rules do not allow you to make a profit from a loss. You will be paid only for the loss incurred. The insurer will not pay as you have already recovered your losses. Had you filed a claim, the insurer may have exercised its subrogation rights to recover money from the airline.
I am moving to a new city and will be transporting my car by truck. In case of any damage during transport, who will cover the costs: my comprehensive car insurance policy, the transporter or his insurer, or should I buy an add-on cover? How will the price of the add-on cover be calculated?
—Chanchal Sharma
Your comprehensive car insurance will cover the damages during transit. If you need car repair, you can claim directly from your insurer. However, your insurer may take a right of subrogation from you. This would allow your insurer to recover the damages from the transporter.
Recently, a fire accident at the factory of a leading snack manufacturer was in the news. Can you tell me if fire insurance also covers loss of business opportunity or does it only cover the damage from fire? Can an add-on be bought that covers loss of business opportunity? I run a small factory with annual turnover of about Rs10 crore. How is its premium calculated, and are such policies advisable?
—Inder Bansal
Yes, the standard fire insurance can be extended to cover loss of profits. The policy is known as ‘fire loss of profits’. In case, due to an insured event, the business shuts down, such policy would indemnify loss of profits during the period. The sum assured is calculated as the sum of gross profit and standing expenses such as rent and salaries. You can choose the duration of indemnification period, such as: 3, 6, or 12 months. The insurer would indemnify based on reasonable time required to reinstate the asset. Premium is a product of rate and sum assured. Sum assured for ‘fire loss of profits’ for a factory is typically much lower than the sum assured for ‘fire policy’. This is because the gross profits are only a fraction of the underlying assets’ value of the business. The latter being the basis of sum assured for the fire policy. Rate for fire loss of profit is marginally higher than that of the fire policy. Overall, premium generally works out to be less than the premium paid for the fire policy.
Such a policy is cost-effective, and I recommend buying this. You should be mindful of the fact while signing up that such policies pay off in case of large accidents such as flood, earthquake, and other accidents that could lead to total loss situations. Typical deductible for such policy is 7 days, that is: loss of profits for the first 7 days is not reimbursed. If the damage can be reinstated within 7 days, nothing would be payable under this policy.
I recently moved to a new house. The house is in need of repairs, and sometimes a brick or two has fallen off the balcony on to the street. I bought the house as I was getting a good deal, and will be getting the repairs started in about a month. In the meanwhile, I have a home insurance cover on the property. In case someone is injured from something falling off its structure, will the insurance cover it?
—Nayan Rastogi
A typical home insurance policy does not cover third party damages. You can buy an add-on to the standard home insurance policy to cover third party bodily injury and property damage. This is also known as ‘public liability policy’. The policy gets triggered when a third party sends you a written notice claiming damages for loss caused to them because of your property. If the matter goes to court, the policy would pay for defence costs, that is: cost of hiring a lawyer, and the compensation awarded by the court. Such policy would cover for damages due to your negligence as well as accidents arising out of your property. For example, fire emanating from your home and engulfing the neighbour’s house will be covered under the policy.