Kidnapping for ransom incidents are chronic problems around the world because they can be an incredibly lucrative business for the perpetrators of these crimes. Kidnap and ransom (K&R) insurance is supposed to save people from having to give up their fortunes to protect their family members.
However, it is clearly not appropriate for everyone. Before you decide to buy kidnapping insurance, you need to consider several important factors. You must understand how it works, know what it covers, and learn what it typically costs.
What is Kidnapping Insurance?
Kidnap and ransom insurance or K&R insurance is designed to protect individuals and corporations operating in high-risk areas around the world. Locations most often named in policies include Mexico, Venezuela, Haiti, and Nigeria, certain other countries in Latin America, as well as some parts of the Russian Federation and Eastern Europe.
Central Asia is also seeing increasing numbers of incidents, particularly in Afghanistan and Iraq.
Losses typically reimbursed by K&R insurance include:
- Ransom monies. Money paid or lost due to kidnapping
- Transit/delivery. Loss due to destruction, disappearance, confiscation, or wrongful appropriation of ransom monies being delivered to a covered kidnapping or extortion
- Accidental death or dismemberment. Death or permanent physical disablement occurring during a kidnapping
- Judgements and legal liability. Cost resulting from any claim or suit brought by any insured person against the insured
- Additional expenses. Medical care, severe disruption of operations, potential damage to company brand, PR counsel, wage and salary replacement, relocation and job retraining, and other expenses related to a kidnapping incident.
The policies also typically pay for the fees and expenses of crisis management consultants. These consultants provide advice to the insured on how to best respond to the incident. Even the most basic training for people traveling to dangerous places is not easily provided or is not obtained by small to mid-sized companies.
How Kidnapping and Ransom Insurance works
In most kidnapping scenarios, the perpetrators demand that the victims avoid notifying other parties. That can be quite challenging, leading to complications when the employer or family needs to contact the insurance company. For this reason, many K&R policies include a specific notification provision.
It says that the policyholder, employer, or family should notify the insurer and the police about a kidnapping only when it is safe to do so.
Once contacted, the insurer immediately swings into action, deploying specialists to assist in the release of the kidnapped individual. This assistance includes negotiations with the kidnappers, delivery of a ransom, evacuation, and appropriate care.
However, a ransom is not paid out directly by the insurer. Instead, the employer or family has to pay it out of pocket or take out a loan. Note that most K&R policies cover the interest on money borrowed for this purpose. Once the crisis is over, the insurer will reimburse the policyholder for the ransom and related expenses.
If total costs go beyond a specific limit, the policyholder is responsible for covering the extra costs.
What is covered
K&R insurance protects corporations and individuals against financial losses that result from kidnapping, extortion, and ransom demands. It is designed to insure those who frequently travel, not for brief trips.
A basic policy typically covers ransom payment, loss of income, interest on bank loans, and medical care. Many policies also cover the costs of business interruption, consultants for crisis management, support services, and even public relations expenses for companies. In addition, a policy purchased by an employer covers lawsuits against the company by the employee who was kidnapped.
Some K&R policies also pick up the tab for losses due to injuries, related cosmetic surgery expenses, time off work after release, travel expenses, and reward money paid to informants. Damages due to extortion, terrorism, and wrongful detention can be covered too.
In a worst-case scenario, funeral expenses may also be covered by kidnap and ransom insurance.
A standard kidnap, ransom and extortion policy provides comprehensive protection:
- Cover for your company directors and officers; full-time, part-time and temporary employees; independent contractors; relatives of employees; and guests on the company’s premises or in an employee’s home
- Reimbursement for kidnap, ransom or extortion payments
- Expenses such as ransom delivery, legal liability, an independent security consultant, business interruption, investigation expenses, and much more
- Access to risk management procedures and protocols, as well as expert advice to help you stay ahead of potential threats.
What Is Not Covered
As a general rule, Americans should avoid traveling to countries that appear in red on the U.S. State Department’s travel advisory map. The State Department has advised Americans to avoid going to those countries, so your K&R insurance might not cover you there. Many policies provide access to security experts who can advise you on where you can travel and how to stay safe when visiting certain parts of the world.
Usually, you must stay quiet about the existence of your kidnap and ransom insurance. You should never discuss it with anyone, not even family members covered by the policy. Talking about your K&R insurance may lead to the cancellation of the policy.
For the same reason, employees may be unaware of kidnap and ransom policies covering them that are purchased by their employers. Insurance companies naturally want to protect themselves against fraudulent kidnap and ransom claims. Announcing that you have a K&R policy is equivalent to wearing a shirt that says, “Kidnap Me!”
These cases are not covered by the insurance provider:
- Any fraudulent, dishonest, or criminal act committed for obtaining kidnap insurance money will not be covered
- The policy claim will be null and void if the incident is found to be fraud, misrepresented or in case of any willful concealment of facts
- Any consequential loss in business or at an individual level resulting from any unfortunate event will not be covered under this policy
- If an individual travels to a country outside India or outside the mentioned territory, such as Iran or Syria, where the United States has imposed sanctions, coverage will not be considered
How much does Kidnapping Insurance cost?
Some policies cost as little as $500 a year, but the price rises quickly. It depends on the type of coverage, benefit amounts, destination countries, and the number of people covered. The cost might be roughly $2,000 for a $5 million policy that covers a year of nonhazardous travel. If the insured is traveling to hot spots, then the price tag goes up.
However, K&R insurance could be worth the expense in the case of an actual kidnapping. A kidnap and ransom claim can quickly run into the hundreds of thousands or even millions of dollars.
Who needs coverage
When most Americans think of kidnapping, they usually think of foreign countries. The U.S. State Department even added an indicator for kidnap risk to its travel advisories in 2019. If you frequently travel to any country on the list, you might want to consider getting K&R coverage.
The prime targets are wealthy businesspeople and their families, professionals traveling abroad, tourists, journalists, and aid workers.
Kidnap and ransom coverage is often provided as part of a corporate insurance portfolio. Companies often use it when they have employees who frequently travel to areas where kidnapping is a problem. K&R insurance can include coverage for spouses, relatives, guests, nannies, housekeepers, or just a single individual.
Individuals can also purchase K&R insurance as a stand-alone policy. However, most individuals who buy it are affluent or high-profile because of the cost of these policies. Celebrities, famous musicians, sports stars, and politicians are more likely to have kidnap and ransom insurance.
Additionally, nongovernmental organizations (NGOs), universities with international programs, and other institutions often purchase these policies. Such organizations could face lawsuits if their workers, volunteers, or students were harmed.
Kidnap insurance can be taken by people who consider themselves to be a target for kidnappers. NGOs, ship owners, managers or individuals and companies operating in unsafe areas can also purchase this policy for their employees and their families.
Claim Process for Kidnapping Insurance
In an unfortunate event of kidnapping or extortion, the insurance company should be informed immediately and the below-mentioned claim process should be followed:
- In case of incidents like kidnap, extortion or wrongful detention, a relative of the insured must immediately report to the insurance company
- Details like the identity of the hostage, all communication made with kidnappers, demands if made any, and details of all significant events must be provided to the insurance company to evaluate the coverage
- Oral as well as written notice about the incident should be provided to the insurance company with the date and time of the incident, along with the latest updates
- If approved, the claim amount will be paid as per the valuation
Documents Required For Claim Process
Following are the details to be provided to the insurance company to evaluate the claim:
- FIR copy
- Details of all significant events
- Details of all communication made with the kidnappers
- Method used by kidnappers to transmit their demands
- Other documents required as per the need of the case
Advantages of Kidnapping Insurance Policy
Let us look at some of the advantages of kidnap insurance plan:
- Provides cover against kidnapping, extortion or allied risk threats
- Any person or business, company owner, employees and their family members can be insured under this policy
- There is a 24-hour emergency helpline service available for reporting such unfortunate events immediately
- Kidnap insurance plan covers the expenses incurred for investigating the extortion threats even if no monetary ransom demand was made
- In some cases, it covers medical and travel-related expenses also
- If a policyholder goes missing during the policy period and if his/her body is not found within 36 months from the day of the disappearance, the nominee gets the death benefit
Hostile incidents, including kidnapping and ransom events, are more common than might be expected. They also have the potential to be quite damaging to both the individuals involved and any organizations with which they might be associated.
Certain entities are more vulnerable to hostile incidents than the average citizen, including:
- Employees and contractors of multinational organizations, especially those working in remote or low-resource areas.
- Employees working in (or individuals traveling to) areas suffering from political instability and socioeconomic hardships.
- Employees of domestically-based companies who regularly travel internationally.
- High-net-worth individuals and families, including celebrities.
Travel to areas of political instability or socioeconomic hardship can leave employees vulnerable to potentially dangerous situations, such as interaction with organized crime enterprises, extortionists and kidnappers, and even terrorist groups.
The trauma associated with hostile incidents is very real to those involved. Such incidents can result in devastating financial losses, compromise a company’s or individual’s reputation, and even unfortunately loss of life.
K&R insurance protects corporations and individuals against financial losses that result from kidnapping, extortion, and ransom demands. Although these policies are often complicated and sometimes expensive, they are an absolute necessity for employees or high-net-worth individuals traveling to areas where the kidnapping risk is high.
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