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.

Key Takeaways

  • Americans traveling to certain foreign countries, high-net-worth individuals, and famous people are most likely to need K&R insurance.
  • Kidnap and ransom insurance provides negotiators and eventual reimbursement, but the victims must pay the ransom with their own money before it can be refunded.
  • A basic K&R policy typically covers ransom payment, loss of income, interest on bank loans, and medical care.
  • Some basic policies cost only $500 a year, but the price rises as coverage expands.

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.

How Kidnap 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.

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!"

Never tell anyone that you have kidnap and ransom (K&R) insurance. Publicizing your K&R insurance dramatically raises your risk of being kidnapped and may void your policy.

The Cost of Coverage

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.

The Bottom Line

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.