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News & Views

Saturday, May 26, 2012

Keep a close eye on terms of bundled insurance

[Source : The Economic Times]

MUMBAI: Who doesn't like to get freebies along with their main purchase? Given a choice between two products carrying the same price, most buyers will plump for the one with a 'free' gift attached to it. The space of financial products also offers similar schemes. For instance, free insurance with mutual funds or credit cards.

However, not everyone agrees that such products offer any real value to the buyer. Instead of incurring cost on the freebies, the manufacturers could have levied lower charges, some financial planners contend. A few months ago, the Insurance Regulatory and Development Authority (IRDA) released a discussion paper that highlights, among other things, situations where conflicts could arise in case of bundled products (free or otherwise), along with other issues relating to the practice.

While the final guidelines are yet to be framed, you can keep the following points in mind while buying such bundled products:

Mutual Fund schemes with free Life Insurance

Ulips (unit-linked insurance policies) appeal to many because they provide a life cover, in addition to an opportunity to participate in equity markets. Some fund houses have tried to create such products in the mutual fund space. This is how such products work: in the event of the policyholder's death within the period of investment, the insurance cover will come into the picture. For instance, the sum assured equal to the balance SIPs will be invested in the fund chosen, under the nominee's name. As the life cover is provided through a group insurance scheme, the mutual fund investor will not have to pay the premium. However, they may have to shell out a higher exit load if they decide to redeem the units during the no-exit period. Besides, it's best to have a separate term cover as bundled covers may not necessarily meet your insurance requirements.

Travel insurance with flight tickets

Manyairline websites offer you the option of buying a travel insurance policy at the time of booking tickets. This product is offered through a tie-up with a general insurer. However, before giving your consent, compare policies offered by other insurers to identify the best product. Tick the insurance box on the airline's portal only if you are convinced that it is a comprehensive deal. Also, remember, such policies are not offered free of charge. You will have to pay the premium along with the air fare.

Free car insurance

During festive seasons, vehicle dealers often offer free car insurance for limited periods, instead of offering discounts on the car's sales price. Usually, the scope of such policies is restricted to the mandatory part of motor insurance. If you are keen on add-ons, you need make a separate purchase. Also, like all policies, read the policy wordings and understand the renewal procedure before going ahead.

Personal accident cover with credit cards

Many credit cards come with in-built personal accident covers. Again, these are group insurance covers not requiring premium payment by the cardholder. While it provides extra protection for free, you need to understand the terms before relying on it completely. For instance, it may not compensate loss of income due to temporary disabilities, which a comprehensive personal accident policy will cover. You can treat the cover as additional protection, but buy an independent cover to ensure a foolproof protection portfolio.

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