Skip to main content

Free Insurance and Its Truth

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

Can you rely on free insurance?



Indian customers love freebies. Shampoo sales soar if a soap bar comes free with it. A microwave oven is a hit if you bundle it with free cookware. These marketing gimmicks keep the cash registers ringing in retail outlets.


The financial marketplace is no different as companies lure customers with offers of cheap—even free—insurance. Mutual fund investors are offered free life insurance, car buyers are given free vehicle insurance, and home loan customers are told to take a loan cover at a nominal cost. So, along with the base product, you get another absolutely free. Or so you think.


The first rule of intelligent spending is that there are no free lunches. Besides, in order to avail of this free insurance, the customer may be signing up for a product that does not really suit his needs. In a discussion paper released last year, the Insurance Regulatory and Development Authority (Irda) had noted that bundling could raise 'certain concerns for the consumer'. 'Packaging two or more products could become unfair to the consumer as it impedes choice and makes price comparison difficult,' the regulator had observed.


The bigger danger is that free insurance gives the consumer a false sense of security. The insurance cover may not be adequate. For instance, the free insurance that comes with SIPs in mutual funds is capped at 20 lakh. Experts say that one should have a cover of at least 4-5 times his annual income. Besides, there are too many strings attached, making this type of insurance a poor substitute for a regular term cover bought independently.


We examined a few of these two-income products on offer and discovered that while some were beneficial for customers, in many others, the buyer did not really derive any value from the bundling of insurance with other products and services.


Free car insurance


The free cover is only a substitute for the cash discount offered by a car dealer.


The car market is going through a bad phase. The sales fell 6.7% in 2012-13, the first time in 10 years. Car manufacturers are trying every trick to push sales. One such gimmick is free insurance offered to buyers.


WHAT'S THE GAIN?


Free car insurance, even if it is only for one year, is a big draw with buyers, who may have emptied out their bank accounts for the down payment. You can also expect better claims servicing because the dealer will follow up your case with the insurer. The convenience of getting all the paperwork done under one roof is another positive.


WHERE'S THE CATCH?


The free insurance is not really free, but a substitute for the cash discount offered on a car. The insurance premium for the first year to be paid by the customer is borne by the dealer.


Besides, the free insurance may not include add-on covers. It will typically not include the zero depreciation cover and engine protection. Occasionally, these plans also offer customised benefits, but this is usually in the case of high-end vehicles.


The bigger problem is that you may never know whether you got a good deal. Moreover, you will have no say in the insurance company or the product on offer. The dealer will tie up with the insurer of his choice.


Free life cover with SIPs in mutual funds


It's beneficial, but shouldn't be a replacement for a regular term cover.


Imagine a Ulip that charges you only 2.25% a year, doesn't levy a heavy penalty if you quit investing, and doesn't deduct any surrender charges on premature withdrawals. The SIP insurance plans from three mutual fund houses—Reliance Mutual Fund, ICICI Prudential Mutual Fund and Birla Sun Life Mutual Fund—offer exactly this. SIP investors get a free life cover under these plans.


WHAT'S THE GAIN?


On the face of it, the offer looks good. As we said earlier, it's like buying a Ulip without paying the exorbitant charges. The investor gets a life insurance cover merely by having a SIP in an equity scheme at no additional cost.


WHERE'S THE CATCH?


The insurance comes wrapped in several terms and conditions. First, the investor gets a life cover only if his SIPs are on track. There is an exception in case of Birla SIP Century. If you have given 36 SIP instalments, the cover continues even if you stop investing. However, if you switch to another plan or make partial withdrawals, the contract terminates. Even partial withdrawal results in the insurance being terminated.


There is also a heavy exit load of around 2% if you switch or redeem the investment before the completion of the SIP tenure. So, make sure you choose a scheme that can offer stable returns over the long term. Go for a diversified plan with a good record, instead of a fund that has given jerky returns.


Accident cover with credit cards


The cover offered is very cheap and should not make you opt for a costly card.


Personal accident insurance is a unique cover that everybody needs, but very few buy. Some credit card issuers offer a free personal accident cover along with their high-end cards. Others offer discounted prices to their customers. The option comes in handy if the card holder dies or suffers a disability due to an accident.


WHAT'S THE GAIN?


The biggest advantage here is that one gets covered against a risk that he would have otherwise ignored. As mentioned earlier, very few people buy a personal accident cover. Convenience is the other benefit. The cardholder pays a small premium every month, which does not pinch his pocket, but ensures a greater protection for his family.


WHERE'S THE CATCH?


The free accident cover comes with stiff terms and conditions. Some require you to use your card for a minimum amount. Others want you to make a minimum number of transactions every quarter. Some don't consider buying fuel in the calculation.


Personal accident insurance is a very low cost cover. An insurance cover of 2 lakh costs only 150 a year. The free cover does not offer any great value to the buyer. Don't opt for a credit card only because it offers a free personal accident cover. Only if the cover is 20-50 lakh does it add real value.


The bigger problem is that such free personal accident covers offer basic protection against
death and total permanent disability. The partial and temporary disabilities are not usually covered. So, you should buy a policy yourself, instead of depending on the free cover. Besides, the claim settlement procedure could be tedious because the claim is to be routed through the card issuer. You have to intimate the card issuer, not the insurer. Since this is not a core function of the card issuer, expect the service to be mediocre.


Term insurance with home loans


Buy regular term insurance that will continue even if the home loan ends.
Lenders don't like to take risks. So, before they give you a home loan, they will size up your income level, repayment capacity and credit history. Even if everything is in order, they will push you to take a home loan cover along with the loan.


WHAT'S THE GAIN?


Home loan covers are usually single premium policies. The premium is paid through the loan, so the buyer doesn't feel the pinch. Borrowers also have the option of buying such covers directly from the life insurer. They need not pay the premium upfront, but can choose to pay it over a period of, say, five years. Also, since this is offered as part of a group cover, individuals can get a high cover and are not required to undergo medical check-ups before buying the plan.


WHERE'S THE CATCH?


Unlike a regular term insurance, loan insurance plans offer a reducing cover. This also means that if you choose to refinance the loan with another bank, you will lose the insurance benefit.


Besides, this cover is for the term of the loan, while in most cases a borrower prepays the loan. Why pay for a 15-year plan when you actually need the cover for 7-8 years?

A better option would be to buy a regular term plan when you take a loan. Even after you have repaid the loan, the cover will continue to protect you. As the table shows, for a marginally higher premium, you can get a cover that does not diminish.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now