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Untying the Insurance Bundle

Chandralekha Mukerji   Delhi     Print Edition: September 2011

A relatively lower price tag and convenience of tracking only one policy for multiple needs makes a bundled insurance product look attractive to the customer. For insurers, selling two or more products together helps reduce distribution costs, making it a standard marketing strategy. Since it serves the interest of both the parties, combinations such as term plans and critical insurance policies, disability covers with regular health plans, and motor policies and personal accident covers, have become common.

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"There are two prevalent bundling models in the Indian insurance market price bundling and product bundling. Price bundling offers multiple related products at a lesser price, while product bundling offers increased value to the base insurance component. Supplementary benefits such as premium waiver with life policies or health floater covers are examples of product bundling, whereas, riders like accidental death benefit and critical illness offer price bundling,"says Satkam Divya, business head, Rupeetalk.com.

A packaged product reduces the hassles connected with buying multiple products, maintaining separate records and making seperate payments for each policy. "Since you have to track a single policy which covers several assets under one umbrella, consolidation can translate into convenience," says Kamalji Sahay, MD and CEO, Star Union Dai-ichi Life Insurance.

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Bundling helps you get some uncommon covers, which the insurance company may not be willing to underwrite as a standalone policy.

"A personal accident policy of Rs 2 lakhs for your servant or a cover for the home theatre you bought recently will merely cost you around Rs 100 annually. However, the insurance company may not be interested in issuing a policy with that small a premium. But you can buy it along with your home insurance as the premium gets consolidated," informs S. K. Sethi, CEO, RIA Insurance Brokers.

You should not bundle if...
In some cases, packaged covers can help reduce your insurance bill. "This is because selling two or three insurance policies together helps in reducing the marketing costs for the insurer," explains Anil Rego, CEO, Right Horizons.

"By bundling insurance products, customers can avail of discounts on premiums and the savings can go up to 20%," says Arvind A. Rao, a certified financial planner. For instance, for a family of three (husband and wife in the age group of 26-40 years and a child), three separate Health Guard plans from Bajaj Allianz providing a cover of Rs 2 lakh each would add up to a total bill of Rs 8,904 (Rs 3,283 each for the two adults, plus Rs 2,338 for the child). Alternatively, if the family chooses the bundled Family Floater Health Guard, where the whole sum insured can be utilised among the family as a group, they all will have a cover of Rs 2 lakh for a much less premium of Rs 5,745.

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However, it is important to note here that since a floater health plan is a shared cover, it runs the risk of one member using up the entire limit. So, before you jump to grab a packaged deal, it is equally important, if not more, to weigh the limitations of bundling products against its benefits.

Caveat: While bundled products offer enhanced coverage, they may not suit everyone's needs. Though the features of each policy in a combined product remain the same, you may not be able to customise the size of the cover.

"Additional features and benefits embedded in insurance plans are structured according to that specific plan, and hence are different from individual covers. Usually, standalone policies offer a more comprehensive protection than riders," says Satkam Divya of Rupeetalk.com.

Satkam Divya

"If you have a specific need for which a plan is available, a standalone product often makes more sense despite higher costs."
Satkam Divya
Business Head, Rupeetalk.com
Take the case of an accidental death and disability benefit rider. The maximum insurance benefit that an one can choose is restricted to the amount allowed under that specific policy, even if you would like to have a higher cover. Moreover, a rider may not provide for loss of income due to temporary disablement. In contrast, a standalone personal accident policy will pay a weekly allowance, linked to the insured's income.

Further, structures of the bundled features are pre-set. So, if you want a life insurance policy with a 20-year term and a critical illness cover with it, before you buy, check if you can stop paying for the addtional product in case it is required since there may be limitations on renewal and cancellation of riders.

Also, buying, say, a critical illness cover from a life insurer who might not have the expertise in handling general insurance can land you in difficulty at a later stage.

"If insurance providers don't have an effective system for integration of data and communication for prompt service to customers, owning bundled products may be troublesome," says Sahay of Star Union Dai-ichi.

"Therefore, when you look deeper, a standalone product often makes more sense despite its higher cost, that is, if you have a specific need for which there are plans available in market," says Divya.

The bottom line: Bundle only if it suits you insurance requirements. While choosing, one has to be clear about one's goals and needs; otherwise, you may end up buying unnecessary covers just because they can be easily embedded into other products.

"Combining two plans into one policy should not result in the policyholder compromising on the quality of either of the covers," says Rao.

Also, do a price comparison before deciding for or against bundled products as there are situations when separate covers not only provide a wider protection but are more price effective as well.

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