Are your assets underinsured? 4 things to know
The concept of underinsurance comes into play when something is insured for less than its real value. This usually happens when a person does not know the real value of something and yet settles for what is being offered while buying an insurance policy. Naturally, this leads to insufficient coverage at the time of claiming the policy.
Underinsurance is most observed in cases of assets such as a house or gadgets, though it is also seen in case of life and health insurance policies. Underinsurance can affect your cash flow in the long run.
Here are four things you should know before taking an insurance cover for your asset to ensure it is not underinsured.
Know how much you need
To make sure that you are not underinsured, it is important to be aware of how much insurance cover you need. While there is no thumb rule on the amount of cover you need, it should be roughly equal to the market value.
For this, you must get your asset valued as per the current market value. For home appliances, gadgets, or equipment, whether new or second-hand, the insurance sum will be determined based on the market value of the gadget.
For any obsolete equipment or gadget, the value is determined by an expert valuer who can be appointed by the insurer or the proposer. It is advised that you take the maximum sum assured available.
Know how much the cover will pay
Know that the claim amount will be paid in proportion to the cover amount you take. For instance, if you have insured your refrigerator worth a market value of Rs 20,000 for Rs 5,000, your claim will be covered up to 25 per cent of the claim amount. You would have to shell out the rest of the money in the proportion of the risk retained by you.
Suppose the refrigerator develops a snag and is getting repaired for, say, Rs 4,000. The insurer would pay only Rs 3,000 for this, and the rest Rs 1,000 has to come from your pocket. Therefore, it is always advisable to get an asset adequately insured.
In case the insurance is on a reinstatement (replacement) basis, the insurance company will reinstate the damaged asset by paying the replacement value as the claim amount. Some policies even provide for escalation, which essentially means that if inflation leads to an increase in the price of the asset, that will be covered too.
Know what gets covered
While repairs do get covered under an insurance policy, there are two scenarios representing the replacement cost of the gadget.
The first one is partial loss. In this case, the coverage will include the full cost of parts, including labour charge, air freight charge, custom duty, the charges for dismantling, and re-erection of the gadget.
The second is total loss. In this case, the actual value of the items immediately before the occurrence minus the applicable depreciation value will be paid.
Know how to raise a claim
In case of any damage or breakdown of the insured item or application, the policyholder is liable to notify the insurer immediately. The client also needs to provide the information in writing when asked by the insurance companies.
Under a specific segment of fire insurance, and for portable gadgets or equipment, the client will have to submit a copy of the FIR in order to confirm the loss.
Followed by this, the insurance company will handle all the procedures for the claim. The client only has to co-operate in terms of providing the required details and information.
Additional Read: An overview on Insurance
Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec acts as a Composite Corporate agent having registration number –CA0113. Please note, Insurance related services are not Exchange traded products and I-Sec is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Insurance is the subject matter of the solicitation. The advertisement contains only an indication of the cover offered. For more details on risk factors, terms, conditions and exclusions, please read the sales brochure carefully before concluding a sale. The contents herein mentioned are solely for informational and educational purpose.