Can someone force an insurance product on you?

February 29, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Often, you may think you are getting a great deal on an insurance product. Chances are you might not have given this much thought.

Here are some instances where insurance products are bundled and sold to you — some you may like for the sake of convenience and some which you take to avoid further hassles. This practice is called bundling of products.

Case 1
You see some advertisement which promises ‘free insurance’ for your car or ‘insurance for just 1 rupee’ when you buy a car from a dealer. The truth is that neither is the car insurance free nor is it available for a rupee. The dealer gets a healthy commission from the insurance company for the car insurance sold to you and offsets it against a discount on the price of the car which you could have bargained for anyway. Chances are you will get a better deal on the insurance if you do some comparison in the market.

Case 2
You have applied for a loan — personal, education, home, etc. You have gone through the paperwork and the numerous rounds of verification at home and in the office. And finally, the loan is getting approved. That’s when some insurance product is pitched to you for your own good — “Sir, it’s for your own good” — Well, it’s partially correct. But at that moment, you really don’t have much of a choice. You risk not getting the loan if you don’t take it, especially if the person across the table negotiating with you is incentivised for that insurance sale. The insurance is not compulsory and the loan should anyway be disbursed to you though.

Case 3
Another ad which is pretty vocal — “Free insurance with your mutual funds”. Same story again. That’s not the prime reason to buy mutual funds. There are more scenarios in which insurance plans are bundled and sold and where the customer really doesn’t have much of a choice. When buying a car, you are completely focussed on that beauty which you want to drive rather than haggle and analyse some discount which the salesman is offering.

To be fair, there are some merits in all three scenarios — sometimes it’s convenience and sometimes it might actually work in your favour if something happens to you. Some questions which need answers — Should the intermediary be in a position to unfairly influence you into buying an insurance plan? Should they be masquerading an insurance product as a discount when it’s not? Well, these practices have been there for a long period of time, but the insurance regulator has flagged it. So let’s see if you would still be taken for a ride.

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