Oct 16, 2015 02:01 PM IST | Source:

Insurance that you may want to avoid to cut costs

Buying right insurance policies to cover yourself is a must. However, most of us have to deal with the issue of limited resources. Here are some insurance products you may avoid.

Insurance that you may want to avoid to cut costs
Adhil Shetty

Insurance, they say, is an inexpensive way of buying peace of mind. Sometimes, people with resources may go an extra mile and pay insurance companies to get cover for things they consider dear to them. So, people may buy insurance for their body parts, pets, ant farms, and what not.

However, for the common man, the question that often arises is whether you are buying the right insurance product and not wasting money on unnecessary insurance covers.

Most often, people buy unnecessary insurance policies when they come bundled with other products—electronic goods, home loans, cars, or any other insurance policy—as an add-on without realizing that these may cost them dearly.

Let us look at some of the insurance covers you can do without.

Credit protection plan with home loan: At the time of disbursal of the home loan, you would invariably be tempted with a bunch of insurance products to go with the loan. One of the most promoted and most bought insurance plans is credit protection plan.

These are single-premium insurance policies that cover the loan amount in case of the borrower’s untimely demise. The amount of cover can be reducing as the outstanding amount keeps reducing with every EMI, or could remain the same throughout tenure of the policy. The premium is added to the loan amount and, therefore, you also pay interest on the premium at the home loan rate.

Instead of taking a credit protection plan, one can instead opt for a term life insurance with a large cover. Quite likely, a borrower may already have a term insurance plan and could still have opted for a credit protection plan.

If a 30-year-old healthy man opts for a 10-year, Rs. 50-lakh credit protection plan, it would cost him around Rs. 1.2 lakh, or Rs. 12,000 a year. If he had instead opted for a term insurance, he could have got a cover of Rs. 75 lakh to Rs. 1 crore by paying the same amount. A Rs. 50-lakh term policy would have cost him Rs. 6,000-8,000 a year.

Hospital cash benefit plan: These policies provide a fixed amount from Rs. 500-50,000 per day of hospitalization to cover any additional expenses such as lodging and food. These plans are sold mostly as riders or add-ons with health insurance plans, though they can be bought separately even if an individual has no health insurance.

The premium could be as low as Rs. 1,000 going up to Rs. 10,000 a year, depending on the amount of daily cash benefit, age, and other conditions. There is a cap on the number of days for which one can avail the daily cash facility in a policy year. The cap may vary from 150-180 days. Then there are exclusions such as pre-existing diseases, dental treatment or surgery, hospitalization due to pregnancy and childbirth, natural calamities, accidents resulting from drunken driving, etc.

This insurance policy may not suit a family with no incidences of critical illness. Unless there are high chances of long period of hospitalization, buying this policy at an additional cost of Rs. 5,000-10,000 a year could prove to be unproductive.

Insurance for electric and electronic appliances: A home insurance policy covers the house structure and personal contents such as jewelry, home appliances, etc., against damage in fire and burglary. If you already have a home insurance, do not opt for insurance cover for electronic equipment and other appliances.

These insurance schemes cover material damage to your appliances due to any unforeseen event. However, given the number of exclusions and conditions for availing the benefits, these insurance covers are virtually ineffective. In any case, most appliances have one-two year warranty and that is sufficient cover by itself.

Buying a comprehensive insurance for an old car: A car insurance has two parts—the compulsory third-party insurance and the optional part that comprises own damage insurance and personal accident cover. The optional part can be customized by including add-on covers such as zero deductibles, roadside assistance and garage cash, medical expenses, hospital cash, etc.

The premium of a car insurance cover depends on the declared value of the car. The older the car is, the lower the premium. However, if you opt for add-ons such as on-road assistance, emergency fuel cover, etc., the premium can go up substantially.

If you have an old car, which you are anyway planning to replace, you can do away with many add-ons and opt for a basic cover. By doing so, you would save a lot of money. For medical emergencies, you should anyway have a comprehensive health cover.

Buying travel insurance for official tours: Travel insurance covers travel and medical emergencies abroad. If you are on an overseas trip to attend to official work, it is likely that any medical or travel-related emergencies would be taken care of by your employer. In such cases, do not go through the hassle to buy a travel insurance policy on your own. This way you save your money, howsoever small it may be.

Buying an adequate insurance cover is always desirable, but make sure you do not end up buying unnecessary insurance policies that are of no significance. Taking the wrong or unnecessary insurance policies may not cost you a fortune, but they can still be a drain on your pocket. Instead, use the money saved thereof in a more prudent way, for investment or savings purposes.

With a little bit of due diligence, you can make the smart choice and buy the right insurance policy.
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