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Insurance Tips
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iii
121
+ Tips
To Avoid Legal Disputes in Life
General And Health Insurance
Sudhir Kumar Jain
Sanjay Gupta
EDUCREATION PUBLISHING (Since 2011)
www.educreation.in
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About Author
Sudhir Kumar Jain
M.Com, CMA, SAS (Commercial), AIII, Broker
Examination is a well reputed professional of 37
years of rich experience in varied fields of Finance,
Accounts, Costing, Insurance, Taxation, Teaching,
Software development etc. He is a visiting faculty to
various Universities of the country. Additionally his
contribution in the arena of educating a large
number of Officers aspirants from Insurance PSUs
taking promotional examinations since 2007 is well
acknowledged. A number of books authored by him
on the subjects of insurance and design- insurance
course „Diploma in Insurance‟ for National Institute
of Open Schooling are widely acceptable by the
professionals as reference material. He has also co-
authored a number of books on the subjects like
Fire, Engineering and Marine Insurance. Currently
he is a Director with “Embee Insurance Brokers
Ltd” Chandigarh.
Sanjay Gupta AMIE (Electronics and Communication Engg.), M
Tech Biomedical Engg.( IIT Delhi) is regarded as
one of the leading Insurance Surveyor and Loss
Assessor having wide experience of 26 years. He
was employed as a Project In-Charge with USFDA
after accomplishing his M Tech from IIT Delhi. As
a R&D Engineer with a core team of M/s Elscent
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Inc, Israel for three years his immense contribution
was to design first of Spiral CT Scanner in the
world. In 1996, he left lucrative international career
to start and practice as Insurance Surveyor and Loss
Assessor, and currently, he is widely acknowledged
for his in-depth knowledge of entire spectrum
subjects related to Insurance, in the country. He has
also co-authored a number of books on the subjects
of Fire, Engineering and Marine Insurance.
*****
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vii
Dedicated To Parents
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viii
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ix
Acknowledgement
Air Commodore V. K. Seth (Retd.)
For
Editing this book
*****
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Disclaimer
The Authors and Publisher hereby excludes any
warranty, express or implied, as to the quality,
accuracy, timeliness, completeness, performance,
fitness for a particulars purpose of the Book or any
of its contents, including (but not limited) to any
financial tools contained within the Book. The
Authors and Publishers will not be liable for any
damages (including without limitation, damages for
loss of business projects, or loss of profits) arising
in contract, tort or otherwise from the use of this
book or any of its contents, of from any action taken
(or refrained from being taken) as a result of using
this Book or any such contents.
*****
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xi
Introduction
“The grace of God is like insurance. It will help you
in your time of need without any limit”.
- Shri Sathya Sai Baba
“You do not buy the life insurance because you are
going to die, but because those you love are going to
live”.
- Unknown Author.
Insurance is not a luxury but in fact it is a necessity. It
does not assure you of becoming rich; but not having
it could certainly imply a total absence of any
financial protection against the possible losses and
could make you pauper and poor.
This book is written with the sole objective to
underline the significance of simple but vital
precautions to be taken while insuring your
Property/Life/Health/Liability and then how best to
settle the claims in shortest possible time without
hassles as and when its need arises.
Sometimes after having insurance, you may not get
full financial protection because of improper policy
wordings and terms and conditions. 122 tips are
written are based on the practical experience of the
authors who is either representing the insured or
assessing the loss on behalf of the Insurer.
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xii
The Tips are compiled for each types of insurance
policies which may be immensely useful for specified
respective fields; but those covered under Sections of
Life, Health and Vehicle insurance are universally
applicable to all.
Some of these tips may have financial burden on the
premium and some may be useful by adding or
deleting the terms and conditions of the policy at the
time of claim.
The last moment of buying insurance may be avoided
and discuss the need of the insurance with an expert.
Wish you best buying and enjoying Insurance !!!!
*****
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xiii
Content
S. No. Particulars Page
1 Fire Insurance 1
2 Engineering Insurance 33
3 Consequential Loss of Profit 45
4 Marine Insurance 53
5 Liability Insurance 67
6 Misc Insurance (Burglary,
Motor, etc)
73
7 Life Insurance 93
8 Health Insurance 107
9 Insurance Jokes 117
*****
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xiv
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
1
Fire Insurance ___________________________________________
The Fire Policy does not cover only the loss/damage
of fire but also due to other perils like lightening,
storms, strike, aircraft damage etc. Therefore the fire
policy in India is known as Standard Fire and Special
Perils Policy. Though these risks are covered yet
certain exceptions would always be there. For the
Indian economy to prosper and grow, every business
organization should invariably insure their assets to
protect against possible losses on account of any
mishap as covered under Fire Policy.
*****
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Sudhir Kumar Jain
Sanjay Gupta
2
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
3
Tip-1.1
Replacement Vs Market Value
under Fire Insurance
Reinstatement Value and Market Value are the only
two methods to settle the claims under fire insurance.
Meaning of these two terminologies is totally
different and thus its distinction needs to be well
understood.
If Reinstatement Value is opted, then in any event of
mishap, the Insurer will settle the claim at the value
of the damaged/lost property for its current
replacement cost. Under Reinstatement Value policy,
the sum insured will be higher which attracts higher
premium as compared to that of Market Value one. It
is advisable to insure the property/assets under
Reinstatement value.
But under the Market value, the claim will be settled
after charging depreciation depending upon the usage
of the assets on the replacement value. Insurer
generally issues the policy on Market value by default
unless someone specifically seeks for the
Reinstatement Value one.
How to calculate the Reinstatement Value of the
property is explained in the following tips.
Tip-1.2
How to calculate the Sum insured of Building
under Fire Insurance for Reinstatement clause
Building is a permanent structure and the cost of its
basic components used therein, would remain
fluctuating over the time on account of inflationary
pressures in the economy and other interventions by
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Sudhir Kumar Jain
Sanjay Gupta
4
the Governments like implementation of GST Act
etc. It is thus imperative that when preferring the
claim, its value needs to be calculated to currently
prevailing costs of its construction as follows;-
Area of the building (all the floors) X Current value
of cost of construction per (sq feet/metre)
While computing the Current Value of the building,
its height including the plinth, specific materials used
for its construction and that of floors, sanitary
fittings, sewerage pipes, water pipes, immovable
wooden fixtures, electrical wiring in the building are
to be taken into account.
Electrical lights along with their fittings, fans, air
conditioners and temporary structure are excluded
from these calculations as these are separately dealt
under the Heads of Furniture, fixture and fitting. So is
the case of boundary wall and retaining wall.
In the event of unavailability of verifiable current rate
of construction, then the RBI index of steel and
cement needs be applied to calculate the current price
of the building.
Tip-1.3
How to calculate the Sum insured of Plant &
Machinery under Fire Insurance for
Reinstatement clause
The Books of Accounts represent the historical cost
of the assets i.e at the price these were purchased and
with the passage of time, these assets depreciate in
value but whereas the price of assets to be replaced
invariably increases.
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
5
The value of assets to be insured should invariably be
as per the current prevailing price in the market.
However furnishing of this information is an uphill
task for large organizations as to get the quotes for
each and every machine and their accessories at the
time of renewal of fire policy is a tedious work. It is
thus recommended that the RBI Index of respective
industry may be applied to calculate the value of
plant & machinery and including additions/reductions
during the course of the year leading to renewal of the
policy. RBI Index is available at:
www.rbi.org/publication/annualpublication/wholesale
priceindex
Miscellaneous expenses during construction or
acquiring the assets related to know-how of
technology fees /R & D/license/ franchisee etc are
ignored while applying the RBI Index. Basic idea is
not to inflate the total value of the assets unnecessary
resulting in paying higher premium.
The period of insurance must be specifically defined
in the policy. Generally the period of fire insurance
will not exceed by one year. The period can be less
than one year but not more than one year except for
the residential houses which can be insured for the
period exceeding one year also to get extra leverage
of adequate time available to its renewal as and when
due well in time without any risk of a break in which
any unfortunate incident of loss can happen with
irreparable loss.
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Sudhir Kumar Jain
Sanjay Gupta
6
Tip-1.4
Compact policy for Office/Hotel/shops
The Compact Policy is specially tailored for multiple
risks cover under one policy to the benefit of specific
industry i.e. Office/Hotel/Shops.
Fire, burglary, flood, earthquake for the building and
contents, sudden breakdown of machinery or damage
to the Electronic Equipment in office, Workmen
compensation, Public and Professional liability,
Money-in-Transit, Fidelity Guarantee etc are all
covered by this policy, with only one exception of
that of boundary wall. Additional premium needs to
be paid for that if required.
Out of all risks covered under this policy, only fire
and burglary ones are compulsory whereas others are
optional. One can choose the limits of Sum Insured
for each section of coverage offered depending on the
insurance needs of the enterprise. It could also
include employer‟s benefit policies such as Group
Personal Accident and Group Health Insurance etc,
all under a Comprehensive package insurance policy.
If more than 4 risks are covered at one time, then
insured is entitled for a discounted premium.
Tip -1.5
Temporary Removal of Stock Clause Vs Floater
Policy under Fire Insurance
Quite often, varied kind of stocks lying at the insured
premises are to be moved out to other locations for
various reasons of business including that for
modifications/fabrications etc; and thus to ensure that
such stocks being moved to different locations remain
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
7
covered against possible risks of untoward
happenings are either covered under “Floater Policy”
or “Temporary Removal of Stock” Clause.
In “Temporary Removal of Stock” Clause, the stock
up to 10% of their insured values can be removed
from the insured premises without disclosing the
addresses of the fabricators etc subject to a payment
of additional premium of 10% of the sum insured.
However in case of the “Floater Stock Policy”, one
needs to specifically mention the addresses of all the
locations where the stocks would be shifted as briefly
illustrated of an example below;-
Example: A person is having two storage points;
and the value of stock is Rs 50 lakhs and the stocks
could be moved to any one of two locations to and
fro, then he can insure the stock under floating
policy by paying an additional premium.
Tip-1.6
Bush Fire Vs Forest Fire
A large numbers of industries are co- located in the
adjoining area of rural India where the wheat /rice
and other cereal crops are grown. After every
harvesting cycle of the crops, cleaning of the
agriculture fields by burning the stubbles is a regular
though highly prohibited practice of land owners
which make these co-located industries are highly
vulnerable to fire risks. These fire risks are not
covered in Fire Policy as default. To cover such risks
against possible losses to the co-located industries,
the “Add on Cover” of “Forest Fire” is to be opted by
paying an additional premium. Buildings in the
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Sudhir Kumar Jain
Sanjay Gupta
8
course of constructions in the rural areas are also
recommended to opt for similar cover of “Forest
Fire” whose endorsement wording in the policy is as
under:
“In consideration of the payment of premium of
additional premium the insurance under item of the
policy shall extend to include loss of or damage to
the property insured directly caused by burning,
whether accidental or otherwise, of forest /jungles
and cleaning of land by fire”
Tip-1.7
Mid Term cover of RSMD and STFI
Generally mid-term cover for STFI and/or RSMD
perils are not permissible but when granted as per
terms and conditions by paying additional premium
on short period scale, these commence within 15 days
of the receipt of the premium. The policyholder
should ensure that not only to receive the
Endorsement reference; but also to obtain a fresh
policy covering RSMA and STFI, as in case of
possible loss, the Surveyor could deny the settlement
of the claim. Similar is the case when the deletions of
these covers are sought at any time.
Tip-1.8
Principle of Contribution under Fire Insurance
If a person insured his property with two insurance
companies, then in case of fire loss both the insurance
companies would pay the loss value to the owner
proportionately. However Condition Number 11 of
any “Fire Insurance Policy” in this regard is
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
9
important for the claimants to know its significance
because the claims are often rejected by the Insurance
Companies by erroneously interpreting the Principle
of Contribution on which the above Condition is
based, as given below under italic;-
“If at the time of any loss or damage happening to
any property hereby insured there be any other
subsisting insurance or insurances, whether effected
by the insured or by any other person or persons
covering the same property, this Company shall not
be liable to pay or contribute more than its rateable
proportion of such loss or damage”.
It is to understand that the Condition Number 11
would come into play only if only it meets the
conditions of Principle of Contribution as under:
a) Two or more policies of Indemnity should exist
b) The policies must cover a common interest
c) The policies must cover a common peril which is
the cause of loss
d) The policies must cover a common subject matter
e) The policies must be in operation at the time of
loss
To understand the Condition 11, the following
example would illustrate its exact implications;-
A person “X” insured his stock as „Held in Trust”
lying with a jobber for the risk cover of excess of over
Rs 25000/-. The Jobber in turn has also insured the
stock of all the suppliers at his end as “Held in
Trust” for the excess of over rupees Rs 5 lakhs risk
cover. In the eventuality of the stock of “X” getting
damaged due to fire at the premises of the Jobber;
and when “X” filed a claim for the damages, his
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Sanjay Gupta
10
Insurer invokes the Condition no. 11 and demanded
the contribution from the Insurer of Jobber who in
turn declinethe demand because his policy is for the
stocks in excess of Rs 5 lakhs value.
Comments:- Insurer at jobber‟s end is correct in
deckling the demand because firstly it is inconsistent
with the Principle of Contribution as no common
subject matter exists and further its risk cover is for
excess of Rs 5 lakhs. And most importantly the
Principle of contribution is applicable only amongst
the Insurers only; and not with the Insured. The
conditions those are beneficial to the Insured can
only be incorporated but not otherwise. And further
the condition 11 cannot overrule the „Principle of
Contribution”. It is thus the Insurer of X who has to
meet the cost of damaged goods fully provided all
valid conditions of Policy are observed.
Tip-1.9
Importance of “Agreed Bank Clause”
under Fire Insurance
All policies in which a Bank has a partial interest
are to be made out in the name of the Bank and
Owner or Mortgagor and the Agreed Bank Clause
incorporated in the policy. The organizations which
borrow funds from the banks or financial
institutions, there is a condition that in their
insurance policies, the detailed information of all
bank/Financial Institution be essentially mentioned.
Insurer includes the clause namely “Agreed Bank
Clause” but the names of the Bank/Financial
Institution if inadvertently are not
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121+ Tips To Avoid Legal Disputes in
Life General And Health Insurance
11
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