Natural calamities are sudden, unforeseen and difficult to face. You cannot predict the impact of such a disaster. It can lead to loss of life, financial crisis and extreme distress. Life insurance companies provide life cover for your sudden death to help your family tide over the immediate financial burden.

However, does that apply to risks related to natural disasters? If yes, how do insurance companies provide such benefits?

Life Insurance

Life insurance is a contract between an insurance company and an individual, wherein the company assures to provide a life cover against possible death risk to the individual. Term life insurance, which is a basic life insurance policy, has been exclusively introduced for this purpose. It provides a sum assured to the nominee if the policyholder meets with an unexpected death during the policy term. It is paid against regular premium amounts paid during the policy period. 

The next question is whether life insurance covers all types of deaths. Well, the answer is not a complete yes! A basic life insurance policy does not provide life cover for a few conditions listed below:

• Death due to an adventurous activity out of curiosity
  
• Death due to consumption of drugs, alcohol or smoking habits
  
• Death due to terrorist attacks, war etc.
  
• Death due to sexually transmitted diseases such as HIV
  
• Death due to homicide
  
• Death due to natural disasters or calamities

However, if you feel you face the risk of death, possibly due to a natural disaster because of your location, such as floods, you can always avail of the optional rider^# insurance. 

What is a rider^# in life insurance?

Riders^# are add-on features provided by insurance companies to extend the life cover for specific reasons. For example, it can be used as life cover or for meeting the medical expenses due to certain specified diseases. There are different types of add-on riders^#.

Similarly, you can avail of exclusive benefits from life insurance riders^# for death caused due to natural disasters like tsunami, cyclones, floods, etc. For example, you must consider such life insurance riders^# if you reside in a cyclone or flood-prone areas such as Kerala or Maharashtra. The rider^# options come at an extra cost. However, it is worth the payment.

You can enquire about the different options and the rider^# quotes during policy inception. TATA AIA Life Insurance policy details are elaborate on such terms and conditions for clear understanding purposes. 

However, it is relevant to mention here that insurance rider^# options provide life cover and cannot be extended to safeguard your valuables, such as your car or house. There are specific insurance policies to cover damage to personal property.

For example, car insurance will provide the necessary financial support for getting the repairs done due to damage caused by storms, earthquakes etc. It is the best way to stay protected to ensure no huge financial burden arises during harsh weather conditions. 

Why is it difficult for insurers to provide life insurance cover against natural disasters?

It is quite a natural question because life insurance companies provide financial support to grieving families. The reason is primarily that the insurance industry is prone to catastrophe hazards.   

What is a catastrophe hazard?

It is a type of risk that results in a large number of death claims raised by the nominees for the respective deaths of the policyholders at the same time. Some of the common examples include earthquakes, cyclones, terrorist attacks etc. It will certainly cost more for the insurance companies to handle such death claims.

Based on the size and extent of the catastrophe, the collective claims will increase, leading to financial criticalities not budgeted or accounted for by the insurers. For this reason, insurers exempt themselves from providing such life covers. The life insurance companies generally work based on the assumption that an event that caused an unforeseen death in a family is not so common or likely to happen with many families at the same time.

Thus, if you want to get insured against such a catastrophe hazard, you can always use it separately as an add-on rider^# option to receive the benefit given the costs involved. 

How do insurance companies manage such natural disasters?

Insurance companies survive such natural disasters by opting for reinsurance. All or part of the risks covered by the insurance company towards a policy is ensured by the reinsurer. Thus, it is insurance for the insurance company. A catastrophe bond is an example of reinsurance. It is a debt instrument utilized by insurance companies to borrow money when a certain event occurs. Once the pay-out is provided to the insurance company in the event of such a disaster, either the interest payment or the principal amount is deferred or waived. 

L&C/Advt/2022/Aug/1881