A holistic protection plan needs to be prepared in consultation with a financial advisor
It is hard to miss an advertisement or a push for buying insurance cover wherever you go. As important as insurance is to all of us, it is also important to buy a suitable cover, and not just any available policy. It should also be for a reasonable value. But what happens if an insurance cover is offered for free? Sounds tempting, doesn’t it?
It’s raining free insurance offers these days.
Recently, the Indian Railway Catering and Tourism Corporation (IRCTC) introduced a free insurance cover for its New Delhi-Lucknow Tejas Express. At present, IRCTC offers insurance cover, for a fee, on e-tickets booked online, either through its app or website. Till around August 2018, IRCTC used to offer free and mandatory insurance cover to all e-ticket holders.
Uber has announced free personal accident insurance for all those who ride in its cabs. Bharti Airtel has been doling out life insurance covers of Rs 4 lakh life insurance with its Rs 249-prepaid plan. Earlier OYO Rooms announced a complimentary Rs 10 lakh personal accident insurance and baggage loss cover for all the guests staying in Oyo Rooms, Oyo Homes and other stay facilities of the group to help guests during untoward incidents of accidental hospitalisation or loss of baggage during the duration of the stay.
The latest to join the free insurance bandwagon is ICICI Bank with its complimentary Rs 1 lakh critical insurance cover encompassing 33 critical illnesses for a period of one year to all its fixed deposit (FD) holders that have fixed deposits with maturity of two or more years. Additionally, ICICI Bank has also been offering a product called ‘FD Xtra’ that offers a complimentary life insurance cover for a period of one year for those who invest in FDs of Rs 3 lakh or above for a period of at least two years.
On the rationale for offering a complimentary critical illness cover, Sanjeev Mantri, Executive Director, ICICI Lombard General Insurance, says, “With the emergence of lifestyle diseases amid rising medical treatment costs, a health protection cover is no longer an option, but a necessity. With the unique dual proposition offered by ‘FD Health,’ you can stay covered against medical expenses, without having to liquidate your savings.”
The hope of the insurance industry is that through such small-ticket complimentary insurance products, people would get a taste of insurance and would opt for better and holistic covers in future.
“Through this partnership, we will secure Uber riders against any accident/mishap during the duration of the ride. This is an addition to our ‘satchetised’ insurance solutions for providing coverage to customers according to their needs and ensure their peace of mind during the ride,” says Saurav Jaiswal, Chief Distribution Officer, Bharti AXA General Insurance.
However, experts warn that these covers might force people to believe that they have protection, but they might be caught at the wrong end as these are inadequate. “While the complimentary covers are good to make individuals aware that such covers exist, they are not reliable. Blindly relying on group insurance covers offered with other products or even employers alone is dangerous,” says Suresh Sadagopan, Founder of Ladder7 Financial Advisories.
Several debit and credit cards too offer a complimentary personal accident or purchase protection cover. For instance, SBI provides insurance cover for lost or stolen goods purchased using different SBI debit cards. So, goods that have been purchased using the card are protected in case of house-break, theft from vehicle, theft and burglary during the 90-day period from the date of purchase using the card. However, purchase of perishable items, jewellery or other precious stones is not covered.
Often, the free insurance offered with a non-financial product comes with usage and validity norms, failing which your insurance claim may not be valid.
Under the Rs 4 lakh life insurance offer of Airtel, the life insurance cover is valid only till the SIM card recharge is valid, which is for 28 days. So, the insurance cover too is available only till the recharge is active, which is too short a period for any kind of life insurance cover.
Though the personal accident cover available on credit or debit cards comes in handy at the time of emergencies, there are several clauses that need to be borne in mind.
For instance, SBI specifies that for the claim be valid for personal accident insurance, the debit card must have been used once for either a financial or non-financial transaction during the 90 days prior to the date of the accident.
Most card offers also come with a caveat that to claim insurance the flight during which the incident occurred should have been booked using the card, failing which your claim is not considered valid.
The Uber personal accident cover is valid from the point the rider enters the vehicle until the end of the trip.
So, in case of any accident immediately after stepping out of the car (say, you get knocked down just as you get off in a hurry) or prior to boarding is left uncovered and hence it is important for individuals to have a substantial cover, which is valid at all points of time irrespective of the usage of third-party products. Besides, what if your driver ‘ends’ the trip (on his mobile phone) after you have been hit? Technically, you are eligible for the Uber insurance claim, but it’s all very hard and cumbersome to prove that you are eligible for such a claim.
“Any piecemeal approach to risk-management will not work. Investors need to understand that free or cheaper approach may often prove expensive. One should not fall for group covers as these are usually one-year contracts and may or may not be renewed the following year by the service provider or any outside party. Sooner they are in the net of a reliable individual insurance cover, the better for them,” says Shashank Joshi, partner at Akshay Investments, warning against the ill effects of relying on inadequate covers offered by third-party products.
While the claims need to be reported to the service providers (Uber, IRCTC and so on), the payment and any discrepancies arising would not be handled by them. Hence, you would have to contact the insurance provider.
To avoid getting caught off guard, you must analyse the requirement for income protection products of life, health and personal accident insurance products, based on income, dependents, liabilities and lifestyle.
“As a thumb rule, one must have in place a personal accident cover of Rs 50 lakh to 1 crore. You should buy life insurance based on the loss of income support to your near and dear ones that could happen, if you die. Similarly, a medical insurance plan with a base cover of Rs 5 lakh and a top-up or super top-up of Rs 10 lakh would be needed in the current times, to cover hospitalisation expenses,” suggests Sadagopan.
While a life insurance of 100 times one’s monthly income is recommended, Joshi adds, “There are other parameters to consider such as the number of dependents one has, the life style that one follows and the liabilities (loans) that need to be repaid.”
When questioned about health insurance needs, Joshi says, “The Government is offering a health insurance cover of Rs 5 lakh to below-poverty-line individuals (Prime Minister Jan Arogya Yojana, part of Ayushman Bharat) and hence one needs to have a larger cover, especially in metros where lifestyle disease risks are significant.”
The hospitalisation risks today kick in at a young age too, Joshi warns, “One of my clients was recommended a Rs 30-35 lakh health insurance cover for the entire family of six. The 32-year-old later underwent an angiography and angioplasty (procedures to clear blockages in the heart) leading to a Rs 15 lakh hospital bill. So, one needs a relevant cover and to ensure optimum premium, a top-up cover can be considered.”
It is clear that the complimentary insurance cover offers are just ways to lure Indian customers through the tried and tested method of offering something free.
However, a life insurance cover for a mere Rs 3-4 lakh would hardly be sufficient and a validity period of 28 days or even a year is simply not enough “life” cover when you have your whole lifetime is ahead waiting to be insured.
Similarly, a health insurance cover of Rs 1 lakh might not be enough to pay for hefty medical bills when the annual medical inflation is 15-18 per cent.
A holistic protection plan needs to be prepared in consultation with a financial advisor to ensure that you reduce your out-of-pocket expenses on health insurance and your family receives the rightful amount to compensate for the unfortunate loss of the breadwinner to meet the liabilities.
But the purchase protection cover that is offered on credit and debit cards might come in handy on purchases made through the card, which may have been stolen in case you have no other home contents insurance in place. Several recent purchases aren’t added to the home insurance policies by the most efficient of policyholders and you can go through the purchase period conditions and accordingly make a claim.