Friday, October 21, 2011

Tying – Untying the Insurance Bundle

Tired of hassles connected with buying multiple products, opening extra mails, maintaining separate records, making separate payments for each policy and possibly overpaying for your combined insurance premiums? Bundled products are what you need.


A bundled insurance product (combinations such as term plans and critical insurance policies, disability covers with regular health plans, motor policies and personal accident covers, etc) has lower price tag and convenience of tracking thus catching the eyes of customers. It’s also a standard marketing strategy of insurers as it helps to reduce distribution costs and apply economies to scale.


Price  Bundling  and  Product  Bundling  are  the prominent types. Inseparable  and  dependent supplementary benefits such as accelerated death  benefit  or  premium  waiver  represent  Product Bundling offering increased value to the base insurance component,  whereas  additional  Riders  like  accidental death  benefit  and  critical  illness  represent Price Bundling offering multiple related products at a lesser price.
Packaged covers can help not only reduce your insurance bill like the health insurance floaters but also get some uncommon covers which the insurance company may not be willing to underwrite as a standalone policy. For e.g. A personal accident policy of Rs 1 lakh for your driver or a cover for your exclusive music system 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. In a bundled insurance, you can buy it along with your home insurance.


Due to the added cost associated with customer turnover, insurance companies wish to have customers who carry multiple lines of insurance and keep these policies in place for years. Moreover, bringing all of the insurance from a particular household slightly diversifies the company's risk. For customers, when one company is handling all of your insurance policies, that's less time that you must spend sorting through and paying each policy.


The no. of customers who bundle insurance products keeps increasing. Insurers are thus seen to continuously revamp their product offerings and leverage opportunities through innovative bundling. Bundling is no more a choice for the insurer, but inevitable to survive in the competitive market.


Caveat: While bundled products offer enhanced coverage, they may not suit everyone’s needs. We may also not be able to customize the size or features of the cover. Further, there may be limitations on renewal and cancellation of riders. Usually, standalone policies offer a more comprehensive protection than riders. Take the case of an accidental death and disability benefit rider. The maximum insurance benefit that 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.
Do not bundle if you want to customize and desire flexibility, when it complicates the product structure and when it does not give you adequate protection leading to compromising on the quality of cover.


The Bottom Line: Bundle only if it gels with your insurance requirements. When buying, be clear about your goals; otherwise, you may end up paying for unnecessary covers just because they can be easily embedded into other products. Also, do a price comparison before deciding for or against bundled products. 

Thursday, October 13, 2011

A Rider Can Help in Modifying Your Insurance Coverage


Riders are added covers, available on an optional basis with most of the insurance products, which protect you against risks. They help you to buy additional cover at a nominal cost. Generally, this cost is low because relatively little underwriting is required. Based on your eligibility and need for protection, they can be mixed and matched. 

When you avail of a simple insurance policy and then add a rider to it, you get additional benefits attached to your policy. Riders help you increase your insurance cover quality and quantity wise. A rider is generally like a mini-insurance policy that is added to your insurance policy because there are chances your original insurance policy might not cover everything, and therefore, you may need additional protection.

Sometimes the basic life insurance policy is not enough to protect you from unexpected expenses like accident and illness. In that case you have to prepare yourself by adding riders. The most common life insurance riders are money back, critical illness, accident benefits, disability riders, waiver of Premium, child Term and terminal illness benefits.

With health insurance riders flooding the market, it is important to choose the right one for essential benefits. Say, hospital cash, patient care, new born baby care, critical illness benefit, E-opinion rider, etc. The health insurance riders may also act as special exceptions to coverage in health insurance plans put in by insurance co.s. Let's say you injured your knee once and had surgery. The underwriters at the insurance company in this case may decide to place a rider on the knee meaning they will cover you for everything EXCEPT for your knee, because they believe they could lose money due to your knee problem. These riders/waivers are sometimes permanent, while other times it may be issued as a two-year, three-year or five-year rider. If the condition does not deteriorate or recur over a period of time, often the insurer will "lift" the rider and give you full coverage.

Home Insurance riders provide better protection and maximum coverage for all your belongings, covering even those items which aren't ideally covered under a home insurance policy. For e.g. for covering your personal possessions, electronic equipments, any additional property that you might have, to cover damage due to a backed up sewer or drain and even a business based home insurance rider.

Auto Insurance Rider, an endorsement, change, or addendum to adjust your car insurance policy by actually deleting potentially unneeded coverage and adding the required ones, will help increase coverage protection and decrease your yearly premium for insurance. For e.g. Waiver of Depreciation rider, Loss of Use rider, Accident Forgiveness rider, Family Protection Coverage rider, etc.

The option of using "riders" is good for the insurance companies as well as for the general public because it enables the companies to insure people/products whom/which they would otherwise decline to cover. When a claim for the benefits of a rider is made, it can result in the termination of the rider, while the original policy continues to insure you as usual. Note that the insurance coverage, premium rates, terms and conditions of riders differ from one insurer to another. Since riders empower you with much-needed control over your ever-changing life situations, it is imperative that you sit down with your insurance broker to evaluate the benefits of the rider and buy the one that is best-fitted for you and your family before taking out an insurance policy.