There’s more to what meets the eye

Continuing Cover Note’s list of insurance terms that are not exactly what they seem, here is a mixed bag.

When an insurance policy offers a ‘deductible’, it kind of sounds good for you. However, it isn’t, exactly. Even a ‘voluntary deductible’ against which you get a discount in premium isn’t a freebie you are getting.

A deductible is a part of the claim that the insurance company won’t pay. It will be specified upfront as a percentage of the claim, or a flat amount in each claim, and you have to foot that amount yourself. A deductible is a compulsory clause in some policies. Some policies even allow you to opt for a voluntary deductible for a premium discount.

You get what you pay for, and so, be alerted that the premium discount means a claims discount. As I have asked before in Cover Note, is the premium costly or the claim?

The deductible is also called ‘excess,’ and of course there can be a ‘voluntary excess’ as well. The normal meanings of these words indicate a benefit for you, but now you know what they are.

Deductibles are normally to be found in motor, health and property (fire, theft) policies which are indemnity policies; that is, they reimburse your actual expenses/ loss.

Benefit policies like life insurance policies, annuity policies, critical illness, personal accident and, indeed, liability policies do not have deductibles.

Now for a term that sounds bad, in fact terrible, for you, but it isn’t. In fact, it’s a delightfully good thing for you in the midst of a big loss. Constructive total loss. When you hear this term when your car insurance policy is being settled, don’t write off that car which is, maybe, at the bottom of your local lake or river, or crushed under a massive tree that fell in the last cyclone.

It doesn’t mean that the insurance company is shrugging you off. What it is saying is that it is so costly to retrieve and repair your car, that they are just going to pay you the cost of an equivalent vehicle.

As they say, into every life, some rain must fall.

Some terms are bad and some good and some can mean the opposite of what they sound like. But some insurance terms have meanings that are merely a bit different.

‘Different meanings’

A benefit policy, as we saw above, is one that has a pre-set flat sum you can claim when the insured event takes place. If one is diagnosed with cancer, the sum assured is paid. If one has an accident, the sum insured is paid. All this is regardless of the actual expenses.

In your hospitalisation insurance, there is a cover for domiciliary hospitalisation. It has brought much premature cheer to those who are considering the policy. Just hold on, for it does not mean your coughs and colds will be paid for. In other words, it is not domiciliary treatment aka outpatient treatment insurance.

Domiciliary hospitalisation means hospital treatment given at home. This has to be recommended by the treating doctor for reasons including lack of hospital beds or the medical inadvisability of shifting the patient to a hospital.

This clause was invoked during the peak case load periods of the COVID-19 pandemic, when treatment at home and also at make-shift facilities was the only option for thousands of patients as the hospital capacity was overwhelmed.

Let us finish this instalment of Cover Note with something that means exactly what it says. Yes, there are those too!

An automatic reinstatement clause, which can appear in a property insurance or health insurance policy, means this: when a part or the whole of the sum insured is used up on payment of a claim, the original policy coverage amount is reinstated, or topped up, usually only once in a policy year. This is a good clause to have on your health policy since coverage is not easy to come by and healthcare costs, which are already high, can explode in certain cases and you will not be bereft of coverage.

(The writer is a business journalist specialising in insurance & corporate history)