Kidnappings—including ‘virtual’—have become increasingly popular over the last several years, especially in some areas of the world.
What if you regularly travel to some of these areas, whether for business, pleasure, or both? Are you covered if you’re kidnapped and held for ransom against your will? How can you know, and what can you do if you’re not?
In this handbook, I’ll quickly explain the basics of kidnapping and ransom insurance and where you can turn if you’d like to learn more.
What Does Kidnapping for Ransom Mean?
According to Springer’s Encyclopedia of Law and Economics:
“Ransom kidnapping refers to a situation in which the overriding purpose for the act is a payment (usually a sum of money) for the release of the hostage and the enrichment of the perpetrators.”
Given these situations’ precariousness, how does an insurance company pay the ransom for a kidnapped person’s release?
How Does Kidnapping and Ransom (K&R) Insurance Work?
Kidnapping and ransom insurance is designed to cover travelers who frequent areas where kidnapping is a legitimate concern, along with their employers, against financial losses resulting from kidnapping, extortion, and ransom demands.
Depending on your needs, you can purchase a standalone policy, or the company you work for can buy coverage on your behalf.
You can also extend coverage to another individual, a spouse, relative, or just about anyone else who resides in your dwelling (e.g., guests, nannies, housekeepers, etc.).
K&R Insurance Coverages
After an insurer is contacted and they’re aware of the kidnapping, they’ll immediately enlist the help of professionals to help with negotiations, ransom delivery, your evacuation, and eventual return home.
Specifically, a basic K&R policy covers things like:
- Ransom payment
- Loss of income, along with time off work following the release
- Travel expenses
- Rewards paid to informants
- Interest on bank loans
- Medical care
Depending on your needs, you can also purchase expanded coverage for:
- Business interruption
- Crisis management consultants
- Public relations services
- Damages caused by extortion, terrorism, and wrongful detention
- Lawsuits against a company by a kidnapped employee
- Funeral expenses (in a worst-case scenario)
An Important Note About Payouts Under a K&R Policy
Most standard insurance types, such as auto and homeowner’s, pay repair costs directly to the professionals who complete them, less a deductible paid by the insured.
Conversely, K&R insurance requires that the policyholder, whether an individual, family, or corporation, pay the ransom and any associated costs first. The carrier then reimburses the insured, including any interest on loans, once the crisis has ended.
Like any other type of insurance, kidnapping and ransom policies come with limits, after which the insured is wholly responsible for related costs.
What are Some Common K&R Insurance Exclusions?
Kidnapping and ransom policies are highly tailored to the risk insured, so broad differences in coverages, exclusions, and costs (more soon) exist.
With this said, K&R insurance can exclude coverage in countries listed as “Do Not Travel” (those shaded red) on the U.S. State Department’s travel advisory map.
Furthermore, carriers frequently include provisions outlining your (and your employer’s) silence about K&R coverage, lest you become a target for criminals looking for a big payout.
Who Might Benefit from Kidnapping, Ransom, and Extortion Insurance?
Even if you only travel to areas not actively under a U.S. State Department travel advisory, but do so infrequently, then K&R insurance likely isn’t for you.
Instead, if you travel to moderate-risk foreign countries regularly, then K&R might be something to consider. This type of insurance can also be ideal for:
- Wealthy business people and other high-net-worth individuals
- Family members of high-net-worth individuals
- Celebrities and those with high public profiles, such as politicians, professional athletes, and musicians
- Aid workers
If you fall into any of these categories, how much might you expect to pay for kidnapping and ransom insurance?
How Much Does a Kidnapping and Ransom Policy Cost?
Kidnapping and ransom policies typically start at between $50K and $100K worth of coverage, which might cost less than $500 annually. Like any other form of insurance, this price increases as you expand coverage.
Factors that will impact how much you pay for K&R coverage include:
- Type of coverage
- Coverage limits
- The countries to which you frequently travel
- The number of people covered under the policy
With these details in mind, carriers commonly offer up to $50 million worth of coverage under K&R policies, which can cost $2,000 or more per year.
How Can You Learn More About Kidnapping and Ransom Insurance?
If you’re ever forced to file a claim under kidnapping and ransom insurance, which often run into the hundreds-of-thousands or millions, the coverage provided under your policy could more than make up for what you hand over in premium payments.
As I’ve outlined above, though, there are many moving parts when it comes to K&R coverage, which is why you should turn to the professionals at IHS Insurance Group when you’re ready to learn more. We can help you choose adequate limits and necessary endorsements at a price that won’t break the bank.
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