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What is ‘Catastrophe Insurance’?

Dec 27, 2019 | 7 months ago | Read Time: 3 minutes | By iKnowledge Team

We all know how life is full of uncertainties and more so, when you have no clue when the next natural or man-made disaster might strike you. None of us have any control over nature’s fury that can occur in the form of earthquakes, hurricanes, floods or droughts, while others such as terrorist attacks could also hit you. Though the probability of such events is extremely low, but in case you are a victim of either, you will end up incurring high costs.

But before getting into the nitty-gritties, let’s understand the meaning of catastrophe insurance.

What is Catastrophe Insurance?

The meaning of catastrophe insurance

Such insurance products are meant to protect businesses as well as residential property against natural calamities and man-made disasters discussed above. They are generally not a part of your life insurance policy, which is the reason it becomes essential to understand this form of insurance.

It is different from other types of insurance policies since it isn’t easy to estimate the potential loss in such circumstances and it is natural that several claims will be filed at the same time in case of such an occurrence. This is the reason why it becomes difficult for catastrophe insurance providers to manage risks.

Besides, as a precautionary measure, such insurance companies purchase a policy that protects them from insolvency in case of a natural disaster. This is generally known as reinsurance.

Why Catastrophe Insurance?

Instead of a single policy, most insurance companies provide several policies to cover different aspects. For instance, a home insurance policy offers certain coverages, but earthquakes and floods aren’t included. Most of them cover only certain events, so you can never be fully insured for major loss. This is where catastrophe insurance comes into the picture.

The coverage you buy is also dependent on your geographical location, since it could be more prone to natural risks such as hurricanes, tornadoes, windstorms or floods. Additionally, there are special catastrophe insurance policies that are available for specific disasters as well, such as floods, storm insurance, earthquake insurance as well as volcano insurance.

How Catastrophe Insurance works?

Whenever a disaster occurs, you need to consult your insurance company to determine if the damage comes under any of the policies you have purchased. For example, if you live in a flood-prone area, you need to be insured for floods.

It is best to check the limitations of your policy so that you don’t get caught up in a situation later.

Why India needs catastrophe insurance?

According to an estimate by World Bank, twenty-two of India’s states are today prone to natural hazards, which puts the country’s economy at risk.[1] However, more than the economy, the lives of millions of people are at stake and need security in case of natural and man-made disasters. We all know loss of human life can never be compensated, but the financial losses can be recovered if the right steps are taken.

Since financial security of your family is of utmost importance in the case of natural disasters and otherwise, it is imperative to invest in a good term insurance policy. A term insurance plan is a type of insurance for a fixed tenure, wherein the sum assured is given to a beneficiary, in case something happens to an insured policyholder within the specified period.

Though some policies remain until you die, a term insurance is valid only for a specified time. While these plans differ from lifetime insurance, they provide maximum coverage at lower premiums.

Whatever be the situation, take all the necessary precautions and safeguard yourself and your family. As they say, a stitch in time saves nine! To know about Aegon Life’s life insurance or other products, visit our home page.


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