One can fill a book on misconceptions about insurance. A lot of this can be traced to insurance companies projecting that everything is covered, intermediaries leaving more unsaid than said and, you and me, the consumers, not doing our own due diligence by asking questions and reading the fine print.
There have been worldwide movements to simplify the language of the law as it affects the common man.
The Plain English movement, or the Plain Language movement, emphasises that contractual language should be simple and understandable by those it binds. It started as a response to the fact that the language in which laws of the land are written is not simple and plain enough for the common man whom it is meant to protect. When it comes to business, this movement impacts insurance the most.
Let us get back to look at some more intended or unintended promises of the insurance industry as seen through technical terms.
We saw in an earlier Cover Note instalment that Constructive Total Loss means a partial loss that is payable as if it is a total loss because the cost of recovery and repair would be untenable. Like a sunken car for example. This was a case of the term sounding negative while it really meant something not that terrible to the insured.
Loss-of-profit cover
Here is a sad conundrum. For businesses, there is sophisticated and very valuable insurance called loss-of-profit insurance. Also called consequential loss insurance, it is given on top of regular fire insurance for plant and machinery and covers the loss of profit because of production disruption due to a fire accident.
The production, sales and profits of the plant are taken into account for issuing this policy and the loss of profits is given as claim periodically till the plant is up and running again and production can resume.
So, if a fire destroys the factory, the fire policy will pay for rebuilding it and replacing or repairing the machinery and the loss-of-profits policy will make good lost earnings for the affected period.
However, if the factory is partially destroyed, and some of the production lines can be run even with reduced output, you can’t claim under the consequential loss policy. Talk of a case of all or nothing.
‘All or nothing’ applies to event insurance as well. Whether it is mega events like IPL matches or tennis grand slam events, or a wedding in your family, some underlying concepts are the same.
One is that it is the actual monetary loss as in input costs that is covered. So, material costs that go into preparing for the event like venue, décor, professionals etc. are taken into account. Ticket money collected can also be refunded with the insurance claim, but profits and their loss are not covered. In personal events, the emotional trauma or social fallout of cancellation of a wedding isn’t covered.
And, in any case, the coverage for a cricket match, for example, ceases when the first ball is bowled!
All or nothing
So, it is all or nothing again. As for personal events, remember that it is a wedding insurance and not marriage insurance. A falling out between the spouses isn’t remotely covered!
Here is another googly that insurers bowl. In property insurance, say for a building or goods in transit, the average clause applies. This states that if at the time of damage, the value of the property is less than its real value, then the claim would also be proportionally less.
Logical, but very annoying when you are at the receiving end. Or rather, the non-receiving end.
Let us end this instalment of Cover Note on a positive note. A double indemnity clause means…. exactly what is says!
A life insurance policy with a sum assured of ₹1 lakh, will pay ₹2 lakh in the case of accidental death. In most cases the additional premium is minuscule.
Watch for these hidden gems in the fine print and do avail of the benefits of being a thorough buyer of insurance.
(The writer is a business journalist specialising in insurance & corporate history)
