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Covers to avoid

Covers to avoid

Not all insurance policies offer good value for money. Here are some that you can do without.

Insurance companies, like any other business, constantly improvise and develop new products, be it travel cover on domestic airlines or additional cover on a credit card. However, not all policies are worth their cost or offer significant value to customers, even if they are bundled free with a product. So, it would do well to avoid such covers.

In many instances, the clauses and provisions that exclude various events or occurrences make the policy more suitable for the insurer rather than the insured. The policies that have a narrowly defined coverage can also be eschewed, as it is cheaper to buy comprehensive policies than specific, but more expensive, ones. Here are some policies that you can bypass:

Air travel: The covers for air travel within India offer little for your dependants and only provide protection against loss of luggage or delay in baggage arrival. Airlines and government agencies are known to make up for loss of life in an air mishap, while baggage delays and loss are compensated by airlines through future travel discounts, making this insurance policy redundant.

Add-on covers on credit cards: Credit card issuers get group discounts while offering insurance with a card, a feature that helps them lure prospective clients. Some cards offer personal accident and health covers for free, but these usually provide little protection. For instance, the health cover is usually a hospital cash benefit that kicks in only after three days of hospitalisation.

Electronic goods: Buy an appliance or an electronic item and you are bound to take the extended warranty. With companies usually offering a 3-5-year warranty on parts and components, and manufacturers covering new products, it’s not worth buying a policy for gadgets with the householder’s insurance. Also, the falling cost of electronic items means that it is better to upgrade to a new model rather than insure an old gadget that is not easy to repair.

Low deductables: This is an avoidable expense, but one that is frequently overlooked: covers with low deductibles. Go for high deductibles, especially on must-have coverage. Boosting deductibles by even a modest amount can mean significant savings in terms of premiums. For instance, a Delhi-based 35-year-old buying a Maruti Swift Vxi for Rs 4.28 lakh pays Rs 11,600 as insurance premium, with a Rs 1,000 deductible. If he opts for a Rs 3,000 deductible, the premium falls by Rs 3,000-8,600. But, remember, this entails ready availablility of cash in case of a claim.

How to buy only what you need:

  • Check the risks you are exposed to
  • Match risk management with available insurance cover
  • Transfer financial risks that you cannot manage with available insurance covers
  • Opt for deductables to reduce the premium burden without compromising on the cover

Published on: Jun 18, 2009, 11:18 AM IST
Posted by: AtMigration, Jun 18, 2009, 11:18 AM IST