Insurance Uncovered

The following are some of the frequently asked questions in property insurance, compiled from IRDAI’s website:

What are the different types of property insurance policies?

The most popular is the standard fire and allied perils policy which covers most of the perils the property is exposed to, like fire, riots, flood and storm. Loss of current assets due to burglary and theft can be covered under a burglary & house breaking insurance policy. Valuables can be covered under all risks policies and there are package policies for house owners and shopkeepers.

How does one fix the sum insured?

Generally, there are two methods. One is market value (MV) and the other is reinstatement value (RIV). In the case of MV, in the event of a loss, depreciation is levied on the asset, depending on its age. Under this method, the insured is not paid the amount sufficient to buy the replacement.

In the RIV method, the insurance company will pay the cost of replacement subject to ceiling of sum insured. Under this method, no depreciation is levied. One condition is that the damaged asset should be repaired/replaced to get the claim. It may be noted that the RIV method is allowed only for fixed assets and not for other assets such as stocks and stocks in process.

How does one arrive at the value of assets in dwellings or offices or industries?

Other than dwellings, industrial units or offices will maintain books of accounts showing therein the value of assets. Therefore, there will not be any problem in arriving at the sum insured. In the case of dwellings, one should take stock of assets under broad categories such as furniture and fixtures, clothing, bed linen, kitchen equipment, electronic gadgets and arrive at the sum insured.

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