By Prashant Nimgade · Published · Updated
Sunita takes pride in her ground-floor apartment in Thane. She ensures fresh painting of all her walls every year and regular cleaning of all the drains. A hidden internal leak from the building’s main drainage pipe grew over the last three years and rotted the concrete wall behind Sunita’s bedroom. She has no knowledge of it yet.
Then, suddenly, a 72-hour downpour happens, and water, along with sewage, bursts through her wall and damages all her belongings. Sunita files a claim against her property insurance. But it gets denied. The insurance surveyor brings out a moisture meter, points at the deep-seated black mold inside the concrete, and writes: Gradual wear and tear.
Such claim denials are exactly why homeowners need to understand the cause of the denials from their property insurance provider and know what to do to prevent them.
Here are three common causes of home/property insurance claim denials in India, and solutions to prevent those denials.
It has been raining in your city for 3 days straight. Afterwards, you notice that rainwater is leaking into your home and damaging all your furniture. You think that since your property insurance also covers flood and storm, you will be insured for the damages.
On the other hand, the Insurance surveyor, upon inspection, denies the claim and points out that the water leak happened not because of a sudden breach, like a tree crashing into your wall, but due to the gradual wear and tear of the walls during the last few years.
Now, the property surveyor’s assessment may be erroneous, but you are unable to do anything.
Reasons for Claim Denial:
The insurance company denies the claim due to the “Gradual Wear and Tear / Lack of Maintenance” exclusion clause in their policy. The policy is structured this way because insurance is a contract of indemnity, or a promise to help you recover only the losses caused by the sudden accident, and not a maintenance contract.
How to prevent it:
● Every year in April, get professionals to audit your home for leaks and damages and get them all fixed.
● Also, save all the receipts of the repair work done along with photographs. These will become documentary proof for the surveyor in case of a claims dispute.
● In the event of damage happening, document the Proximate Cause with photographs also. If you can prove the proximate or major cause to be a sudden event, like a tree crashing into your roof, then your claim will not be dismissed easily.
Many Indians will quote a lower property value to the insurance company to avoid paying higher premiums.
Suppose, after a sudden property damage, the repair costs come out to be well within the insurance coverage amount. A ₹50 Lakh property was quoted as only a ₹25 Lakh value to the insurance company, and the subsequent damage repair costs came out to be ₹10 Lakh only. The property owner will assume that he will get compensation for the entire repair bill.
However, the insurance property surveyor calculates the payable amount to be only ₹5 Lakh. The property owner now has to pay the rest out of his pocket. Their insurance cites the “Average Clause” for a reduction in the payout.
In an unrelated situation, the undervaluation may simply happen due to rising reconstruction costs.
Reasons for Denial of Full Claim Amount:
According to the insurance providers, when the property owner chose to insure only part of their home by secretly undervaluing their home, they decided to be co-insurers of their own home. They unintentionally agreed to partly bear the damage themselves.
The percentage of the property value that the owner decided to get insured for determines the percentage of the replacement costs that is paid out. In the above example, since the owners valued their home at half the real price, they could also recover only half of the damages.
How to prevent it:
● Do not underinsure intentionally. Compute the valuation of your home and its contents properly by building an inventory list and photographs. Calculate them using “Reconstruction Cost” instead of its “Market Value,” which will have the land value included in it. For all your belongings in your home, declare what it would cost to buy them new, and not how much they could sell for.
● Review and scale up your Sum Insured by 5-10% during every annual renewal to keep pace with market inflation. You can also ask to include an Escalation Provision in your policy during signing. It increases the sum-insured each year by 10% to compensate for inflation.
● Also, if you are buying a standard home insurance policy in India, always check the policy wording regarding under-insurance.
Suppose you run a small meal delivery service of fresh-cooked food from your home to support your family and your financial independence. But this started maybe after signing up for property insurance, so the company is not notified.
In another situation, you decide to run a tuition centre for your financial stability and also to help the neighbourhood kids. Here, the homeowner neglects to inform the insurance company of this development.
In both situations, even after a valid sudden damage, the property surveyor rejects the claims completely and pays them out ₹0.
Reasons for Claim Denial:
The insurance company denies the claims due to the “Material Misrepresentation” and “Alteration of Risk.” Due to misrepresentation of relevant information about the property use, the sum-insured and premium decided for residential property insurance is now completely different from that of one where commercial activities are also involved. Also, as the property is now associated with additional risk, the insurance company did not know it was covering it.
Because of this misinformation, your insurance contract becomes void from the beginning, according to the “Void Ab Initio” doctrine in contract law.
How to prevent it:
● Disclose the exact nature of your home business to your insurance provider in writing. The insurer will review the risk added, and in most cases of the business being small, they will issue an Endorsement, or a legal amendment to your policy, and accept your risk. They may charge a higher premium for that.
● For a rapidly expanding home business, opt for a specialized commercial plan, like the Shopkeeper’s Insurance or the Business Package Policy.
Even though the property insurance claim from Sunita would have been denied in most cases, due to her situation, she could have taken other measures to ensure she got paid for her damages. As the drainage behind her home belonged to her society, she could formally contact her society immediately about the leakage. If her concern was not taken care of, then she now had documented proof of a Proximate Cause of the damage to her home.
If we have learned anything from Sunita’s case, then the worst time to read a property insurance document is after the disaster has happened. A few minutes of proactive verification today ensures that when the heavy Indian monsoons arrive, you can sit back and relax while you stay safely covered.
If you are still looking for a home insurance policy, then check out our website.
Disclaimer: This content is for informational purposes only and should not be treated as financial, medical, or insurance advice. Policy terms, exclusions, and benefits vary across insurers. Please review official policy documents and seek professional guidance before making decisions.
SimpliInsure.com is an online portal managed by Virtual Galaxy Insurance Brokers Pvt. Ltd., registered with IRDAI as a Direct Broker (Life & General). Registration No. 750, Registration Code IRDA/DB859/21, valid from 2024 to 2027.
Registered office: No. 91/1, 1st Floor, Above ICICI Bank, Infantry Road, Bengaluru 560001, Karnataka, India. Phone: +91 95133 55661.