What Is "Act of God" Coverage? Are You Paying For A False Sense Of Security?

Insurers use the term "Act of God" to describe natural events that humans cannot affect, such as earthquakes, floods, cyclones, or lightning. Most comprehensive insurance policies, especially those for homes or vehicles, cover Acts of God. However, this does not mean every catastrophe is covered automatically. Gradual natural deterioration causes damage, such as soil erosion from water over time or slow damage from poor maintenance under heavy rainfall. Unless otherwise specified, events of this nature may not be automatically covered under comprehensive policies. You will often find this term when taking home or travel insurance.

"Usually, all home and travel insurance policies provide cover for Acts of God. This means that if you incur any losses due to natural calamities or disasters, they will be covered under this clause. The definition of an Act of God varies from insurer to insurer, and so does the coverage," says Amit Chhabra, CBO, General Insurance, Policybazaar.

Are insurers using the term to deny legitimate claims from policyholders after natural disasters? "Although outright denial of legitimate claims is not typical, we can certainly get confused because of the technical language in all policies. Occasionally, insurers can deny claims if the particular disaster is not listed as one included in the policy or if the loss was preventable. Therefore, reading the fine print and understanding exactly what is included in your policy is very important. Most claims disputes arise from a difference of opinion as to what the policy covers and what the insured thinks is covered," explains Kunal Varma, Founder and CEO, Freo.

Typically, policyholders need special riders or add-ons to protect themselves from climate-related damages truly. "Yes, in many situations, motor insurance will not cover engine damage from water ingression unless you purchased an 'engine protection' rider. Likewise, with home insurance, there also may be optional riders (such as flood protection or earthquake protection) with your basic coverage. With weather patterns becoming more extreme, it's prudent to examine your policy and consider riders, not just to protect yourself, but to have peace of mind," adds Varma.

In-Home Insurance 

For example, while home insurance will cover you in case of a flood or an earthquake, the following will not be covered in home insurance. So, all-natural disasters will be covered in the policy. 

Gradual damage or wear and tear from rough weather over time (rust or erosion) and water Seepage (if not a flood)

Preventable disasters like damage due to poor maintenance and damage due to negligence against property are also not covered. 

"If 'Act of God' is covered in the policy document, it most definitely will be covered by the insurer. If you live in risk-prone areas, it's advisable to check the policy document thoroughly while buying the insurance plan," says Chhabra.

In Travel Insurance

In travel insurance, the effects of 'Act of God' will apply mostly to luggage or trip cancellations/delays, which are already covered in travel insurance. This can be due to the negligence of the airline or a weather incident. 

Terrorism, for example, will not come under an Act of God. If you cancelled your trip to Kashmir after the terror incident, it would not be covered in your travel insurance policy if it was not specially mentioned. If you are travelling to a destination in spite of a travel advisory or falling ill due to some pre-existing medical condition, it will not be covered or covered only up to a certain limit. You can take a policy with a 'cancel for any reason' for full protection.