CHAPTER 3: NON-LIFE INSURANCE PRODUCTS

LEARNING OBJECTIVES:
After studying this chapter, you should know about:
• Elements of Non-Life Insurance Products
• Benefits/Limitations and Provisions When Insurance is Taken from Multiple Companies
• Criteria to Compare Various Insurance Products
• Global coverage for Different General Life Insurance Products

3.1 Non-Life Insurance

Non-Life insurance provides risk cover from loss or destruction of assets. It provides cover
against unexpected large expenses that can be a drain on the available income of the
individual.

3.1.1 Elements of Non-Life Insurance Products

● Sum insured is the amount specified in the policy that represents the insurer’s
maximum liability for claims made during the policy period. The minimum and
maximum sum may be specified by the insurer.
● Term of the insurance is typically 1 year. In some cases, such as health/ two wheeler
policies, the term may be two/three years.
● Premium payable is a function of the sum insured and the assessed risk. The risk is
determined based on the type of insurance cover such as: age, gender and health
history for medical cover; cubic capacity of the vehicle, place of registration and age of
the vehicle for motor insurance etc. Premium is typically paid at the inception of the
policy.
● Deductible is a term used to denote the portion of the claim that is met by the insured.
● Restore and Recharge are two benefits available in health insurance policies. In
restoration benefit, the health insurance company restores the sum insured to 100% in
case of either partial or full exhaustion of the sum insured amount (as the case may be).
Alternatively, in recharge benefit, the sum insured is restored to 100% only when it gets
reduced due to a claim.
● No claim bonus is the benefit of lower premiums enjoyed in subsequent years for each
year of no claims being made. It can also be offered as an additional bonus cover, as
another way of reflecting this benefit.

3.1.2 Types of Non-Life Insurance Products

a. Property Insurance

Property insurance provides protection against most risks to property such as fire, theft
etc. Property insurance generally means insuring the structure and the contents of the
building against natural and man-made disasters. Wilful destruction of property, loss/

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damage due to normal wear and tear is generally not covered. Valuables such as jewellery
and art and antiques typically require an add-on or separate insurance policy. These kinds
of policies are normally taken along with a home loan, as the lender insists on such a policy
to be taken by the borrower.

b. Health Insurance

Health insurance policies reimburse the medical expenses incurred for the policy holder
and identified family members who are covered under the policy. This policy provides for
reimbursement of hospitalization or domiciliary treatment expenses for illness or
accidental injury up to the sum insured under the policy. The expenses that can be claimed,
such as consultation fees, medicine and treatment costs, room costs, are specified in the
policy and sub-limits may be fixed for each head. Claim is typically allowed only for “In-
patient” (patients who are admitted in a hospital for treatment that requires at least
overnight or 24 hours of stay in hospital) treatments and domiciliary treatments (patients
can be treated at home when they are not in a condition to be moved to the hospital),
according to the terms of the policy. Now many policies cover day care treatment for
certain procedures which require hospitalisation but due to advancement of technology
the insured may be released on the same day. Pre-existing illnesses may be excluded from
cover for a fixed period when insurance is being taken for the first time or if it is being
renewed after a lapse.
Health policies provide cashless facility too where the bills are directly settled with the
hospital and the insured is not required to pay upfront, upto the sum approved for this
facility. There is also the option to take a family floater policy that will cover multiple family
members under the same policy upto the sum insured.
The premium payable on the policy is a function of the sum insured, age and medical
history of the insured, among others. Premiums may be adjusted for continued health
cover and record of no-claim. Portability of health policies are available under which the
benefits of no-claim, bonus and time-bound exclusions for existing conditions can be
transferred, if the insured chooses to switch the insurance company. To benefit from
portability, the previous policy should have been maintained without a break.

c. Motor Insurance

Under this insurance, the company indemnifies the insured in the event of accident caused
by, or arising out of the use of the motor vehicle, anywhere in India, against all sums,
including claimant’s cost and expenses, which the insured shall become legally liable to pay
in respect of (i) death or bodily injury to any person, (ii) damage to the property other than
property belonging to the insured or held in trust or custody or control of the insured.
Though the insurance of motor vehicles against damage or theft is not compulsory but the
insurance of third-party liability arising out of the use of motor vehicles in public places is

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compulsory. No motor vehicle can be used in a public place without such Third-party
insurance.
Some lesser known facts about Car Insurance:
i. “No claim” bonus means a reduction in next year’s car insurance premium for own
damage when no claim has been made for a specific number of years and can go up
to 50% of the premium amount where no claims have been made for 5 years. The
“No Claim” bonus is available to the insured person and is not attached to the car.
Thus, when an insured sells an existing car, the new owner will not be eligible for
the no-claim bonus. The original owner can transfer the no claim bonus on the own
damage premium to the new car he purchases.
ii. The own damage portion of the car insurance premium is not fixed and varies from
insurance company to insurance company. An online comparison from an Insurance
Broker or Insurance Web Aggregator can save substantial amounts on premium
while buying a policy for a new car or renewing the policy on an old one.
iii. The new insurance company provides the “no claim” bonus if a policy is shifted at
the time of renewal of the new policy.

d. Personal Accident Insurance

This type of policy provides that if the insured shall sustain any bodily injury resulting solely
and directly from accident caused by external violent and visible means, then the company
shall pay to the insured or his legal personal representative, as the case may be, the sum
defined in the policy. Following types of disablement are covered under this policy:
● Permanent total disablement
● Permanent Partial disablement
● Temporary total disablement
The need for calculating permanent total disability due to accident, just like calculating life
insurance need, is often over-looked and hence permanent disability cover due to accident
is often inadequate.

e. Critical Illness Insurance

This policy provides for a lump sum benefit to be paid if the insured contracts certain
specified diseases such as cancer, heart attack, stroke, kidney failure or multiple sclerosis
etc. It differs from life insurance in that there is no payment on death. Reimbursement is
usually subject to a minimum survival period of 30 days after diagnosis of the critical illness.
The lump sum payment under the critical illness policy can be used in whatever way the
claimant chooses, such as for generating income, or for repaying a mortgage, etc. Currently,
these are available either with life insurance policies or as standalone policies.
Critical illness policies are mostly thought of as an additional coverage to receive a much
smaller lump sum to spend on items that are not covered in health insurance plans. There

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is a lack of awareness about the importance of critical illness policy as an income
replacement policy. The calculation for amount of critical illness coverage required has to
be done like life insurance policy. Normally such large sum will not be available as a rider
to a health insurance policy but only as a stand-alone critical illness policy or as an
accelerated sum insured rider on a life Insurance policy.

f. Overseas Travel Insurance

Travel insurance provides medical, financial and other assistance in case of an emergency
during international travel. The cover will typically be provided for medical help required,
delay in baggage clearance, accident and any additional cover required. The cover will be
in the form of reimbursement upto the maximum amount mentioned in the policy. Travel
insurance may be mandatory for travel to some countries.

g. Liability Insurance

The purpose of liability insurance is to provide indemnity in respect of damages payable

under law for personal injury to third parties or damage to their property. This legal liability
may arise under common law on the basis of negligence or under statutory law on no fault
basis i.e. when there is no negligence.

Most common example of liability insurance is professional indemnity plans taken by

various professionals like Doctors, Lawyers or Investment Advisers. Liability insurance
provides cover for legal expenses incurred in defending suits or payment of damages to
third parties for which the insured is found liable. Liability insurance will not cover
intentional damage or damages caused due to criminal activities.

h. Fidelity Insurance

A fidelity insurance policy covers losses sustained by the employer as a result of an act of
forgery, fraud or dishonesty from an employee. The loss can be of money or goods, for the
duration of the policy. The policy is usually taken where large sums of cash or other
valuables are being handled by the employees.

i. Directors and Officers Liability Insurance

The Directors & Officers liability insurance policy insures members of the board of
directors, the management and employee performing a supervisory or managerial role in
a company against personal liability and defence costs incurred from claims alleging them
to have committed a wrongful act in the line of their duties for the company.

Some specific exposures that make the policy necessary include vulnerability to
shareholder and their claims, discrimination allegations, regulatory investigations,

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corporate governance requirements, compliance with legal statuses and other
employment practice violations.

j. Keyman Insurance

Keyman insurance is a life insurance policy that a company purchases to cover itself in case
of the loss of life of a key executive. The company is the beneficiary of the policy and pays
the insurance policy premiums.

3.2 Benefits and Limitations of having multiple Insurance Policies

Multiple indemnity policies such as Health Insurance Policies make very little sense as the
total claim amount cannot exceed the sum insured on all policies put together. Multiple
policies also mean having to deal with multiple insurance companies at the time of claim
settlement that brings added complications.

In health insurance the premium rate per additional lakh of coverage drops significantly as
the coverage increases and becomes almost negligible after a certain amount of coverage.
For example, the premium payable on a health insurance policy for Rs. 100 lakhs may be
just a few single digit thousand rupees more expensive than a Rs. 50 lakhs health insurance
policy.

Sometimes multiple health insurance policies are unavoidable as the employer may offer
policies upto a certain amount and the employee may wish to cover a larger sum insured
or to have an independent policy of their own. In such cases, the contribution clause is not
applicable except where the sum insured of the policy chosen by the insured is lower than
the claim amount.

The insured person needs to choose from which company to get her claim from, and
normally she should choose the employer policy first. The chosen insurer has no option to
apply the contribution clause if the claim amount is less than the sum insured in the chosen
policy. However, if the amount of claim exceeds the sum insured under the chosen policy,
the insured person can choose another policy(ies) under which the claim can be made. In
such cases the claim is settled by the chosen insurers by applying the contribution
provisions.

In many a times, the insured may choose to buy a base policy (say Rs. 5 lakhs) and a super
top up policy (say Rs. 10 lakhs) with a deductible (say Rs. 5 lakhs). Using this strategy, the
insured is able to get a total coverage of Rs. 15 lakhs at an economical premium (as the
premium on the super top up policy is quite low). The total premium paid on base policy
plus the super top up policy as above can be compared with the premium on single policy

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of Rs. 15 lakhs. Interestingly, the premium of the second option (single policy of Rs. 15
lakhs) is not much higher than the first option (base policy plus super top up policy with a
deductible totalling to Rs. 15 lakhs). The small difference in the premium is due to the
administrative simplicity of having to deal with a single insurance policy. However, super
top up policies remain ideally suitable for employees seeking additional cover over and
above that provided by their employer. In that case, the employee chooses the deductible
as per the amount provided by the employer and the super top up policy only covers the
claim if the amount is above that value. Many health insurance companies are selling a
combination of Base Health Plan and Top up/ Super top up plan, bundled as a single policy
to provide higher coverage at a lower premium.

If there are multiple defined benefit policies such as life insurance policies, critical illness
policy, accidental death or disability policies, all of them will pay irrespective of how many
such policies the insured person has.

Top up Policy V/s Super Top up Policy

The terms “Top up Policy” and “Super Top up Policy” are not legal terms. They are generally
used to describe a Health Insurance Policy that pays for claims arising from hospitalisation
expenses incurred over and above a pre-agreed threshold limit. The difference between
the two types of plan is in how the threshold limit is applied. In a Top up plan the threshold
limit is applied for every claim whereas in a super top up plan the threshold limit is applied
on the total of all hospitalisation claims for the year.

The following example will illustrate the difference between how the threshold limit is
applied:
In this example we assume:

Case 1: Base Health plan of Rs. 5 lakhs and a Top up health plan of Rs. 10 lakhs above a
threshold (called deductible in many plans) of Rs. 5 lakhs.
Case 2: Base Health plan of Rs. 5 lakhs and a Super top up health plan of Rs. 10 lakhs above
a threshold (called deductible in many plans) of Rs. 5 lakhs.

Here is how the threshold will apply in different situations:

Sr. Particulars Case 1 – Top up Plan Case 2 – Super Top up plan

No.
1. If there is a single claim Rs. 5 lakhs will be paid from the Rs. 5 lakhs will be paid from the
of Rs. 8 lakh Base plan. No limit left in the Base plan. No limit left in the
Base plan. Base plan.

Rs. 3 lakhs will be paid from the Rs. 3 lakhs will be paid from the

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Sr. Particulars Case 1 – Top up Plan Case 2 – Super Top up plan
No.
Top up plan after the threshold Super Top up plan after the
of Rs. 5 lakhs is applied. Balance threshold of Rs. 5 lakhs is
limit left in the Top up plan is Rs. applied. Balance limit left in the
7 lakhs. Super Top up plan is Rs. 7 lakhs.
2. If there are Multiple claims as follows:
First claim of Rs. 3 lakhs Rs. 3 lakhs paid from Base plan. Rs. 3 lakhs paid from Base plan.
Limit left in base plan is Rs. 2 Limit left in base plan is Rs. 2
lakhs. lakhs.
Aggregate threshold limit
already applied is Rs. 3 lakhs
and balance threshold limit to
be applied is Rs. 2 lakhs for the
purpose of the Super Top up
plan.
Second claim of Rs. 6 lakhs Rs. 2 lakhs will be paid from the Rs. 2 lakhs will be paid from the
Base plan. No limit left in the Base plan. No limit left in the
Base plan. Base plan.

Rs. 1 lakhs will be paid from the Threshold limit of Rs. 3 lakhs has
Top up plan after the threshold already been applied earlier. Rs.
of Rs. 5 lakhs is applied. Balance 4 lakhs will be paid from the
limit left in the Top up plan is Rs. Super Top up plan after the
9 lakhs. balance threshold of Rs. 2 lakhs
is applied. Balance limit left in
the Super Top up plan is Rs. 6
lakhs. Aggregate threshold limit
already applied is Rs. 5 lakhs.
Third claim of Rs. 2 lakhs No Limit left in the Base plan. No limit left in the Base plan.

Claim amount of Rs. 2 lakhs is Threshold limit of Rs. 5 lakhs has

less than the threshold limit of already been applied. Hence,
Rs. 5 lakhs and nothing is Rs. 2 lakhs is payable from the
payable under the Top up plan. Super Top up plan. Balance limit
Limit left in the Top up plan is 9 left in the Super Top up plan is
lakhs. Rs. 4 lakhs.
Fourth claim of Rs. 4 lakhs No Limit left in the Base plan. No limit left in the Base plan.

Claim amount of Rs. 4 lakhs is Threshold limit of Rs. 5 lakhs has

less than the threshold limit of already been applied. Hence,
Rs. 5 lakhs and nothing is Rs. 4 lakhs is payable from the
payable under the Top up plan. Super Top up plan. Balance limit
Limit left in the Top up plan is 9 left in the Super Top up plan is
lakhs. Nil.

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Sr. Particulars Case 1 – Top up Plan Case 2 – Super Top up plan
No.
On total claims of Rs. 15 Rs. 5 lakhs paid on Base plan Rs. 5 lakhs paid on Base plan
lakhs and Rs. 1 lakh paid on Top up and Rs. 10 lakhs on Super top up
plan – total Rs. 6 lakhs. plan. Total Rs. 15 lakhs.
3. Administrative issues in If the Base plan and the Top up In the case of Super top up
dealing with separate plan are from different plans, apart from the point
insurance companies and insurance companies then the mentioned under Top up plan,
separate Insurance insured need to deal with both there is an additional
policies of them in cases where the requirement. In the multiple
claim amount exceeds the claims example given above for
threshold limit. Hence, it is the first claim of Rs. 3 lakhs the
always advisable to have the company that is handling the
Base plan and the top up plan super top up policy also needs
from the same insurance to be informed so that it can
company as far as possible. mark the threshold used levels
even though no claim is payable
by the company on the Super
top up policy.

3.3 Comparison between Insurance Policies

3.3.1 Health Insurance Policy vs. Critical Illness Policy

Parameters Health Insurance Policy Critical Illness Policy

Type of policy Indemnity Policy Defined Benefit Policy

Primarily designed to cover Reimburses actual expenditure Provides a lump sum that can be
incurred in hospitalization. used either to generate lost
income or to meet any other
purposes/ expenses, including
meeting hospitalization
expenditure.

Claim paid On incurring covered On contracting pre-specified

hospitalization expenditure. disease/ illness and surviving for
15-30 days.

3.3.2 Offline Insurance versus Online Insurance Policies

Most insurance policies can be bought online nowadays. All insurance companies offer
online policies on their websites. In fact, many insurance companies charge lower

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premiums for policies bought online directly from their websites. There are also ‘web only’
policies offered by some insurance companies.

Many Insurance Web Aggregators or Insurance Brokers provide convenient online

comparison of policies to enable informed choice by the insured person. Given the rapid
uptake of buying policies online by the insured population, these web aggregators/ online
insurance brokers have also become major sources of selling insurance policies for the
insurance companies.

3.4 Global coverage for different General Insurance Products

Will a health insurance policy pay if hospitalisation expenses are incurred outside India?

Normally, defined benefit policies such as life insurance, critical illness policies, accidental
death policies will pay wherever the covered risk occurs. It is relatively easy to verify that
the covered risk (death or critical illness or accident) has occurred and the circumstances
surrounding the incident are ascertainable wherever in the world they happen. Indemnity
policies, such as health insurance policies, involve ascertaining the expenses/ losses
incurred. The insurer already has the necessary systems to ascertain the expenses (loss)
that are incurred in India but ascertaining losses in an unfamiliar location outside India is
difficult. Hence, indemnity policies like health insurance (covering reimbursement of
hospitalisation expenses incurred) normally provide coverage for expenses incurred in
India only.

However, there are some exceptions too. Overseas travel policies are indemnity policies
that are designed specifically for each country. The insurer designs such policies after
making specific arrangements to ascertain expenses (losses) in each foreign country.

Are resident Indians allowed to buy general insurance policies provided by Insurance
companies, not registered in India?

Indian residents can use their Liberalised Remittance Scheme entitlement of up to USD
2,50,000 per annum to buy insurance policies of foreign companies. In many cases where
Indian students go overseas to study, it is usual for them to buy such policies from the
foreign insurer recommended by the concerned university.

However, these policies and the grievance redressal mechanism in case of refusal to pay
claim amounts, are governed by the regulations of the countries where they are issued. So,
caution must be exercised in using this option.

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For students going overseas, is it beneficial to buy a health appropriate policy from an
Indian insurance company or should they buy from an insurance company of that
country?

This will depend on the specific country and the University to which the student is going
for studies.

Some Universities in US, UK, Europe, Australia/ NZ do not give an option of buying a
separate insurance policy. Their cost includes the cost of compulsory insurance policy
bought through them. Some require students to buy it from a designated insurer. Many
will just lay down the conditions that the policy should cover for it to be treated as an
eligible buy. However, some universities do not have any requirement of compulsorily
buying health insurance. As treatment cost can be very high overseas and therefore, even
in such cases, it is advisable to buy appropriate insurance.

Most Indian insurance companies are well aware of the requirements of major countries/
universities and have appropriate policies available to suit the requirements with various
add-on policies.

Generally, universities allow prospective students to interact with their existing students in
a bid to familiarise and ease the way for incoming students in matters such as subjects to
choose, housing, food etc. Such forums help in understanding the requirements, costs, etc.
in deciding upon insurance. Other things being equal, Indian policies tend to be cheaper
than similar policies issued by foreign companies.

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