A Guide To Kidnap & Ransom Insurance Coverage

Each year, there are at least 15,000 to 20,000 kidnappings across the globe – and this number doesn’t even include unreported incidents. What’s more, fewer than 20% of kidnappings are actually reported to authorities, according to some estimates.

Kidnapping-for-ransom incidents have spread like wildfire around the world because it’s an incredibly lucrative business for the perpetrators of these crimes. Each year, kidnappers rake in an estimated $1.5 billion in ransom payments. In Mexico alone (now the number-one country for kidnappings), ransom earnings add up to a whopping $50 million a year.  

Considering these disturbing statistics, it’s no wonder kidnap and ransom (K&R) insurance is skyrocketing in popularity. Here’s a guide to this unique insurance, what it covers and how it works.

Who Needs Coverage

The majority of kidnappings of Americans for ransom and extortion take place in Mexico, Colombia, other Central and South American countries, the Middle East and parts of Africa. The prime targets are wealthy businessmen 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, generally by companies with employees who frequently travel abroad to these kidnap-prone areas. K&R insurance can include coverage for spouses, relatives, guests, nannies and housekeepers, or just a single individual.

Individuals can also purchase K&R insurance as a stand-alone policy. However, because of the exorbitant cost of these policies, most individuals who buy it are affluent or high-profile people, such as celebrities, musicians, sports stars and politicians.

Additionally, these policies are often purchased by non-governmental organizations (NGOs), universities with international programs and other institutions that could face lawsuits if their workers, volunteers or students were harmed.

What Is Covered

K&R insurance protects corporations and individuals against financial losses that result from kidnapping, extortion and ransom demands. It's designed to insure those who travel frequently – it's not for single trips or brief periods of travel. A basic policy typically covers ransom payment, loss of income, interest on bank loans as well as medical and psychiatric care. Many also cover the costs of business interruption, consultants for crisis management, support services and even public relations expenses to help the company protect or repair its image. In addition, a policy purchased by an employer covers the costs of any subsequent lawsuit against the company by the employee who was kidnapped.

Some K&R policies also pick up the tab for loss due to injury, cosmetic or plastic surgery expenses, time away from work after release, travel expenses, reward money paid to informants and the cost of hiring and training new or temporary employees. Losses due to extortion, cyberextortion, terrorism and wrongful detention may also be covered, and, in the worst-case scenario, funeral expenses.

What Is Not Covered

If you travel to a country on which the United States has imposed sanctions, such as Iran or Syria, you will not be covered by K&R insurance. Many policies provide access to security experts who can advise you on where you can and cannot travel and how to stay safe when going to certain regions of the world.

Usually, you must stay mum about the existence of your insurance. You should never discuss it with anyone, not even other family members who might be covered by the policy, to avoid the policy being declared null and void. (For the same reason, employees who are covered by a K&R policy purchased by their employer may be in the dark about it.) The reasons: Insurance companies want to protect themselves against fraudulent kidnap and ransom claims, and announcing that you have a K&R policy is equivalent to wearing a shirt that says “Kidnap Me!”

How It Works

In most kidnapping scenarios, the perpetrators demand that the authorities – and other parties – not be notified. This 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 provision that says the policyholder, employer or family should notify the insurance company and law enforcement officials about a kidnapping only when it’s safe and feasible to do so. 

Once contacted, the insurer immediately swings into action, deploying specialists to assist in the release of the kidnapped individual. This includes negotiations with the kidnappers, delivery of a ransom, evacuation and medical/psychiatric care.

However, a ransom is not paid out up front by the insurer. Instead, the employer or family has to pay it out of pocket or take out a loan (most K&R policies cover interest on money borrowed for this purpose). Once the crisis is over, the insured has returned home and receipts for all payments made have been received, the insurer will reimburse the policyholder for the ransom and related expenses – up to the dollar amount specified in the policy. If a ransom or expenses go beyond this predetermined limit, the policyholder is responsible for covering the extra costs.

The Cost Of Coverage

While some policies cost as little as $500 a year, this price quickly rises depending on the type of coverage, benefit amounts, destination countries, number of employees or individuals covered and many other factors.

The cost might be roughly $2,000, for instance, for a $5 million policy that covers a year of non-hazardous travel and provides the services of a crisis management team. If the insured is traveling to hot spots like Colombia, Venezuela and other parts of South America, the price tag goes up. However, K&R insurance could be well worth the expense in the case of an actual kidnapping, when a kidnap-and-ransom claim can easily run into the hundreds of thousands or even millions of dollars.

The Bottom Line

Kidnap and ransom (K&R) insurance protects corporations and individuals against financial losses that result from kidnapping, extortion and ransom demands. Although these policies are often complex and sometimes expensive, they are an absolute necessity for employees or high-worth individuals traveling to kidnap-prone areas, including Mexico, Colombia, other Central and South American countries, the Middle East and parts of Africa.

For more on unusual types of insurance, see Lesser Known Insurance Policies and 5 Bizarre Insurance Policies.