De-mystifying 'Act of God' in Insurance

Storms, hurricanes and floods leave a trail of fury in their wake. Houses, roads, factories,vehicles and so on are damaged and left useless. Rebuilding your life in the aftermath of such an Act of God is pain stakingly slow. Act of God (AOG) can be explained as wide term used to cover all acts of nature that cannot be controlled by humans and includes earthquake, storms and floods. The 2001 earthquake that occurred in Gujarat, the New Orleans hurricane Katrina in 2005 and the present Jammu and Kashmir floods are all examples of Act of God. Usually Act of God events are catastrophic in nature and the damage caused inwide spread.

Insurance is the protection that we take against the risk of unforeseen events and accidents. The question is, can Act of God perils be covered under insurance? In the earlier days, Act of God perils were excluded under insurance policies, however the present policies offer AOG covers either as an inbuilt cover or as an extension. So, under which policy do we go for AOG perils cover? The Standard Fire and Special Perils policy that one takes for his house, factory or a property covers perils such as storm, tempest, flood, inundation as an inbuilt cover, while earthquake can be covered as an add-on cover. An add-on cover means a cover that is purchased by paying extra premium over and above the standard coverage.

Premium for covering AOG perils largely depend on the geographical location of the insured property amongst other factors. For example, in India, there are different zones based on the probability of the occurrence of earthquake and for each zone the premium charged would be different. Acts of God perils usually attract higher deductibles (the amount that the insured has to bear himself in the event of a claim) when compared to  other normal perils, since the potential of damage which may result from the occurrence of such a peril is very high.

Having property insurance in the form of a Standard Fire policy is not just enough.Your policy should specifically cover AOG perils such as Earthquake (EQ) and Storm, Tempest, Flood and Inundation (STFI). This coverage would be clearly stated in the policy documents. If you live in a flood/earthquake prone area, you must assess the likelihood and/or risk of damages that might occur to your home as a result of flooding/earthquake with the costs of maintaining additional flood/EQ insurance coverage. The chances of an AOG peril occurring frequently are low but the severity of one event would make the entire past premium amounts you have paid worth while.

The present flood of J&K would leave thousands of properties in shambles and lucky would be those who have taken property damage cover with AOG perilextensions.