Do you have adequate auto, home insurance?
live mint , Nov 24, 2015
Last week, many parts of Tamil Nadu and Puducherry got flooded. Floods are bad news for vehicle owners because if the water levels rise so high that it enters the vehicle, from the upholstery to the engine, serious damage may be caused. Plying vehicles face the same danger. Even your homes can get damaged. But if you have a comprehensive car insurance or house insurance policy, there is help at hand.
Here’s a look at the types of damage that can happens to your car and house, and how an insurance policy can help cover these. Let’s start with car insurance first.
Damage to your car
There are typically two kinds of damage that floods can cause to your car. “The car interiors and upholstery could get completely soaked and need to be dried or replaced. The other, and more serious, damage can be to the engine. This happens when people try to crank up the car even when the car is flooded,” said Amitabh Jain, head, motor underwriting and claims, ICICI Lombard General Insurance Co. Ltd.
“If the vehicle is flooded and you continue to drive or crank the engine, the water gets sucked into the engine. The danger of that happening is higher in bigger cars as engines are more powerful. Once water enters the engine, it could either partially or completely damage the engine,” added Jain.
In fact, in a survey conducted by the insurer in July this year with 1,000 respondents from Delhi, Mumbai, Bengaluru and Kolkata, about 72% of the respondents admitted to have driven through water logged areas and 34% of them encountered a situation where their car stalled while driving through low-lying areas. Also, only 26% respondents were aware of the fact that a vehicle’s engine could cease while driving through water.
“Repairing the car’s engine can be very expensive. For example, repairing partial damage to an engine of a sedan could cost Rs.50,000-1 lakh, while complete replacement could cost Rs.2-3 lakh. Repairs in small cars could cost Rs.25,000-50,000, and full replacement up to a lakh,” said Jain. “This is why we recommend that if water levels reach the middle of the wheel, one must not drive or try cranking the engine,” he added.
What’s worse is that this damage will not be covered by your car insurance policy. Other that third-party cover, which compensates a third party for damages caused by your vehicle and is mandatory for all plying vehicles, a comprehensive car insurance policy also consists of own damage (OD) cover.
OD insures your vehicle against theft or damage. Catastrophes such as floods are covered by your car insurance policy, but any consequential loss is not.
“Insurance covers unforeseen events like damages due to accidents or natural catastrophes. But during floods, if you start the engine and the engine gets damaged, the insurance policy will not cover it. That’s because this is not an unforeseen event, but a consequence of you trying to start the engine,” added Jain. “Instead, if you call the insurance company, it will have the car towed to a workshop and have the engine flushed out and dried. The insurance policy will cover that cost. Also, if any upholstery needs to be repaired or replaced, the insurance policy will cover it,” he added.
The good news is that there are add-on covers that will insure the engine even against a consequential loss. “In order to insure the engine for consequential losses, most insurers offer an add-on cover. Some call it ‘engine protect’ while some ‘engine secure’. The add-on cover will pay for repairs or replacement of the engine. One should also consider add-on covers such as zero depreciation cover and road safety assistance cover to be adequately insured,” said M. Ravichandran, president, insurance, Tata AIG General Insurance Co. Ltd.
Damage to your house
Floods could also cause considerable damage to your house. “Flooding and inundation damages the structure of the house, such as its foundation and walls; it can cause the plaster and paint of the house to come off. Further, it could also damage furniture, clothes and electrical appliances. All of these damages are covered by a home insurance policy,” said Sasikumar Adidamu, chief technical officer, non-motor insurance, Bajaj Allianz General Insurance Co. Ltd.
However, many people are unable to make use of the benefits of a home insurance policy owing to poor penetration of the product.
“Due to low insurance penetration, majority of property losses are uninsured. A recent report by FICCI (Federation of Indian Chambers of Commerce and Industry) reflected a similar trend across various floods in the past like those in Mumbai, Surat and Uttarakhand where only 11% of the total losses were covered by insurers. During the Mumbai floods of 2005, total loss of Rs.17,000 crore was reported, of which Rs.4,000 crore was paid by insurers. In case of Surat floods in 2006, the total loss was Rs.27,000 crore, of which only Rs.3,000 crore was paid,” added Adidamu.
To insure your house you can choose from two types of policies: the basic fire insurance policy and a comprehensive policy, also called the householder’s package policy (HPP).
The fire insurance policy covers your house and its contents against fire and other allied perils, which include storm and flood. Some insurers may ask you to pay an extra premium to cover other natural disasters such as earthquake.
HPP, on the other hand, packs in more covers apart from fire insurance. It includes covers that insure contents of your house against burglary and mechanical or electrical breakdown. Other covers include public liability cover (compensates a third party for losses caused by you) and personal accident (offers insurance on account of accidental death or total permanent and partial disability due to an accident).
“Just like car insurance, a standard fire insurance policy will not cover any consequential losses. So, if your electrical appliances get damaged due to voltage surge caused by lightening, the fire insurance policy will not cover it, because that is a consequential loss. But a householder’s policy, which includes electrical and mechanical breakdown insurance, will cover even damages due to voltage surge caused by lightening or otherwise,” said Ravichandran.
Another factor that you need to keep in mind while buying a policy is the basis on which you arrive at the sum insured. “The sum insured can be declared on market value basis or on reinstatement basis. Insurance bought on market value-basis insures assets but will pay for claims after factoring in depreciation. It’s better to insure your house and its contents on a reinstatement basis as this will pay out the claim without any depreciation,” said Ravichandran. Of the two types of policies, the one on reinstatement basis is likely to cost more.
In terms of cost, one must also be mindful of the risk of being under-insured. “At the time of making a claim, the insurer will send a surveyor, who will value the insured assets. If the value exceeds the sum insured, the insurer will consider it under-insurance. This means the insurer will reduce the claim amount in proportion to the level of under-insurance,” said Ravichandran.
At the time of issuing an insurance policy, the insurer typically does not value your assets; it relies on the information that you provide. But at the time of assessing a claim, it will value the assets.
“At the time of buying home insurance, individuals should make a list of all the items and value these so that they can properly arrive at the sum insured figure that needs to be declared under the insurance policy,” said Ravichandran.
It’s important to understand your insurance policy well so that you don’t face a shock later. Following precautionary measures will help you protect against financial losses. At the least, if your car is flooded, don’t try to start it.