Buying insurance at discount? Think twice

Buying insurance is commendable. Being a prudent buyer of insurance is even better.That means more than bargaining for lower premium or looking for more benefits. Insurance is different from most products and services we buy. The price reflects the risks the insurer is taking and the cover and benefits offered.So, when you pay less it is worth asking: what, exactly, am I giving up?In the previous instalment, we saw how an insured, peeved at not getting a discount on a hospitalisation policy, decided not to renew. This meant losing accrued benefits and importantly, the cover itself.We all love discounts. There is nothing wrong with wanting the best value from a transaction. The problem arises when we focus on what we save without understanding what we may be giving up.Consider the experience of a neighbour. The owner of several vehicles, he bought a rugged beast of an SUV. He felt he had earned the right to ask his insurer for a concession. After all, he had been a client for a long time and had several vehicles insured with the company.The agent obliged with what appeared to be a handsome discount on the motor insurance premium.A good deal, or so it seemed. Until the SUV faced a dug-up highway, flipped over the median and had to be towed to the dealer’s garage. That was when the discount got an entirely different meaning.The insured found the discounted premium came with a restriction on where the repairs could be done. Repairs at the manufacturer’s authorised workshop were not covered under the terms of the discounted policy. Getting the repairs done at a non-network garage could mean delays in getting spare parts, concerns about workmanship and, potentially, implications for manufacturer warranties.No free lunchThe premium had been reduced but so was the cover. While the restriction was stated in the policy document, the agent did not explicitly tell the client what the discount entailed. The point he missed was: it may be a perfectly legitimate discount, but it may not be a free lunch.As an aside, buying vehicle cover from the dealer who also has an authorised garage is a win-win decision as said before in these columns. This way, the claim documentation, estimates, approval, repairs and cashless settlement will all take place seamlessly by the same or closely- related entities.I recalled a long-ago incident where a premium discount on a home fire policy resulted in the removal of flood cover. Chennai, as we know, is no stranger to floods, sometimes with tragic consequences. Luckily, since 2021, flood cover has been inbuilt with a single bundled premium following an IRDAI stipulation.Claims tooWhile you have to be careful about discounts when buying or renewing insurance, claims can be fraught too. When a windshield breaks, the damage may be covered by motor insurance. But making a claim for a replacement, costing about ₹8,000, could mean no-claim bonus (NCB) is cut by one slab at least. With some insurers it disappears totally.If you had accumulated the maximum NCB of 50% of the own-damage premium, losing it could mean paying substantially more at renewal. The claim may be admissible, but is it worth making?With most products, paying less means generally getting the same product at a better price if you manage to negotiate well. Insurance does not quite work that way. The premium is a price for a particular bundle of risks, conditions, exclusions and benefits. Change the bundle and the price can change too.Knowing changesBefore accepting a lower premium, ask what has changed. Has an add-on been removed? Has a deductible been introduced or increased? Do you have co-pay now? Has a particular facility or service, like cashless claims, been restricted? Has the choice of repairer or hospital been limited? Has some other condition changed?You may be making a saving, but take a sharp look at what you are no longer getting for that saving. In insurance, the cheapest option is not necessarily the one that gives you the best value. Prudence here is not making assumptions but looking at both sides of the bargain.The discount may be real. The cost of the discount may simply show up later.(The writer is a business journalist specialising in insurance & corporate history.)