Just like any other product you would buy in the market, here too there’s a ‘smart’ way to insure: tips that can help you reduce premium costs and max your policies. Here’s a look at some must-have insurance plans and how you can make the most of them.

No-claim bonus. This is one good way to reduce your premium. If in a particular year, you do not make any claim on your policy, you are entitled to a no-claim bonus on the ‘own damage’ component that starts at 20 per cent and goes as high as 50 per cent.

No small claims. The corollary to this is to not make small claims. To use this effectively, get the numbers right. See if by making a claim, the no-claim bonus you forfeit will exceed the compensation you get. If it does, it makes sense not to make a claim but pay for the damage yourself.

Assume you’re paying a premium of Rs 5,000 on your car (third-party: Rs 700, occupants: Rs 225, own damage: Rs 4,025), with a no-claim bonus of 50 per cent and a deductible of Rs 500. By making a claim this year, you stand to forfeit 50 per cent of the own damage premium (or Rs 2,012) next year. By this logic, it makes sense to raise a claim only if the cost of repair exceeds Rs 2,512 (a deductible of Rs 500 added).

Transfer bonus. When Abhra Rajiv Banerjee, a senior executive in Delhi, bought himself an Opel Astra recently, he transferred his 20 per cent no-claim bonus from his older car to this one. "The reduction on my premium was significant," he says. My Opel Astra cost Rs 6.5 lakh, on which the ‘own damage’ premium was Rs 21,340. A 20 per cent discount on this meant a saving of Rs 4,268.

Although this provision is built into the policy, most agents don’t mention it while selling the policy. Customers, therefore, are unable to make the most of it. "An agent is duty-bound to inform the prospective customer about all the policy details; the discounts must be passed on," says Sam Ghosh, CEO, Bajaj Allianz, but obviously this is observed more in the breach.

Premium discounts. You can claim a 5 per cent discount on premium, up to a maximum of Rs 200, if you are a member of the Automobile Association of India (AAI) or any of its chapters. Also, you get a reduction in the own-damage component of 2.5 per cent, up to a maximum of Rs 500, if you install a certified anti-theft device in your car. To claim it, your car should have a gear lock approved by the ARAI (Automobile Research Association of India). "These discounts are provided since the insurer feels reassured that the policyholder is taking an interest in protecting his vehicle," explains Hyderabad-based risk management expert L. Ravindran. However, many anti-theft devices are not compatible with old cars.

The deductible. The concept of the ‘deductible’ component was introduced about a year ago, whereby you have to mandatorily bear a part of the claims settlement on every claim you make. This deductible amounts to Rs 500 for a car up to 1,500 c.c. (like Maruti 800, Zen, Esteem, Santro) and Rs 1,000 for cars over 1,500 c.c. (like Ikon, Accent, Sonata, Camry etc.). However, you have the option to increase this deductible (‘voluntary deductible’ in insurance parlance) to an amount of your choice–from Rs 2,500 to Rs 15,000. Higher voluntary deductibles lower your insurance premium by 20 per cent to 35 per cent, subject to a limit of Rs 750-2,500. "The deductible acts as a deterrent for customers who were in the habit of making claims for minuscule amounts," says Dalip Verma, managing director, Tata AIG.

However, even if you are a safe driver, it might not be a great idea to opt for this feature. The discount is not worth the extra risk.

Future premiums. In case of an accident, be savvy about repair bills so that you can keep a check on future premiums. For instance, when Manjiri Kalghatgi gave her Maruti in for repairs, she knocked down her mechanic’s first repair bills. "The initial estimate was close to Rs 30,000, but I had it reduced to Rs 10,000," she says. A new door would have cost her Rs 5,000, whereas repairing the old one cost about Rs 1,000. It’s not just the bill, never replace parts you can repair because depreciation rates on many parts is as high as 50 per cent and their insurable value decreases rapidly. Get a repair estimate before you make a claim. It might make sense at times not to make a claim and qualify for the no-claim bonus.

Checklist

• Don’t make small claims
• Don’t forget to transfer the no-claim bonus to a new car
• Replace only when repairing won’t do
• Max the discounts you can get

The main thing about health insurance is to know how much to insure and to be very meticulous about medical details when you are filling in the form. Also, try buying health cover along with family members; it entitles you to discounts on premium ranging from 5-10 per cent, depending on the number of people you co-opt.

Time your policy. There is no need to sign up for a very high insurance amount when you are young. "It is best to buy a minimal health cover when you are in your early 30s and keep adding to the cover every two years," says risk management expert Swami Saran Sharma. To maximise your medical cover, Sharma suggests that you take a policy for a sum insured of Rs 3.3 lakh. Assuming 10 ‘no claim’ years, the cover will be enhanced to about Rs 5 lakh–but you will be paying a premium only on the Rs 3.3 lakh sum insured. Health insurance plans currently have a settlement ceiling of Rs 5 lakh.

Get the numbers right. In medical insurance, avoid the pitfalls of both over- or under-insuring. Agents have a tendency to sell higher value policies by pointing out that the difference in premium is minimal. While this might be true on the face of it, if you are in your early 30s, you are unlikely to need a very high cover.

It’s essential to know the state of your health and your family’s medical history. According to Sharma, most claims in the 30-40 age bracket are below Rs 1 lakh. Therefore, if you are in great shape, a Rs 1.5 lakh policy should be quite enough.

Be transparent. Be completely transparent at the time of signing up for a health plan because any indication or suspicion of fraud may result in your claim being rejected at a later date. Or result in your application being rejected. For instance, if you are on medication that alters physical attributes, state it before taking the medical test that determines premium. Or wait for the effect of the medicines to wear off before taking the test. Or else your application will be unnecessarily rejected on these grounds.

"Before signing up for an insurance policy, it is important to understand the covers and exclusions," says Arun Agarwal, CEO, Cholamandalam General Insurance. R.S. Gandhi, a Delhi-based accountant, is fighting a case in consumer court for the non-payment of his health insurance claim. Gandhi had to undergo a spinal corrective operation for close to Rs 80,000, for which he presented a claim. The insurer, however, alleges that Gandhi’s problem pre-existed the surgery. "My doctor says cases where detection happens in the later stages is common but my insurer insists I was hiding the problem," he says. Gandhi made a claim in the second year of his policy and at 32, he says he least expected a cervical problem.

Often, it could be that you overlooked some small detail in the form. This too can lead to problems later. Most policies come with various levels of coverage and exclusions. It’s important to understand the policy most relevant to one’s needs.

The list of exclusions, or diseases and ailments not covered by the policy, is long. They are intended to ensure that you don’t profit at the insurer’s expense. The list includes existing ailments, regular medical expenses like pregnancy or vaccination, cosmetic treatments and ailments from discretionary behaviour like injury from adventure sports or AIDS. Note these exclusions while buying the policy, so that you’re not taken by surprise later.

Checklist

• Depending on medical history, increase cover with age
• List medical details scrupulously to avoid later disputes
• Understand every exclusion to avoid nasty surprises

Whether you are a house owner or a tenant, you need insurance protection for everything inside the house. Here again, it’s important to avoid the mistake of over- or under-insurance.

Taking the entire package offers discounts–between four and six sections entails a 15 per cent discount, while more than six sections gives you 20 per cent off. But ponder the covers you really need. For instance, baggage insurance and pedal cycle can be ignored, but electronic items cover is a must (See sideshow: Householder’s Insurance).

Pointless insurance. The householder’s policy covers practically everything you can think of–across 10 sections–fire (building and contents), burglary, jewellery, plate glass, electronic appliances, television, pedal cycle, baggage, personal accident and public liability. Taking a comprehensive cover just means needlessly increasing your premium.

If you keep all your jewellery in the bank locker, make a detailed list of exactly what you have. And then insure only for the estimated worth of jewellery you will likely have at home at any given point of time. For instance, if you own jewellery worth Rs 1 lakh but keep only two or three pieces at home, worth about Rs 25,000, insure your jewellery for Rs 25,000 and not Rs 1 lakh. You can thus reduce your premium outgo.

Again, clothes are depreciated by 50 per cent immediately after purchase, so the claim might not be worth the premium you pay. "I lost close to Rs 1.5 lakh worth of articles from my house, including valuable saris, but I could recover only Rs 95,000 from my insurer after the depreciation on the silk saris," says Santosh Jain, a Gurgaon resident.

Missing numbers. It’s equally important not to understate the value of your household goods, assuming that you might lose only a portion of it at any given time. Assume the value of the jewellery you insure is Rs 1 lakh but you take a policy for Rs 50,000, imagining that if you do lose a piece or two, the claim amount will cover the loss. If you do claim, say, Rs 25,000 after a chain-snatching incident, the insurance company will not pay you that amount. It will pay you in proportion to what you insured–therefore you will get only Rs 12,500.

 R.K. Sareen, a 68-year-old retiree, insured his fridge not on its replacement value of Rs 20,000, but at Rs 10,000; when the compressor burnt out, his claim for Rs 3,000 was also halved.

Replacement value. Understand the difference between an indemnity and replacement policy. An indemnity policy will return you the current market value of your used asset, whereas a replacement policy will return you the current market value of a new asset. So, if your music system is damaged in a fire, an indemnity policy will give you whatever it would have fetched had you sold it today, taking into account depreciation, whereas a replacement policy will give you enough to buy a new system. Make sure you revise your cover under this section with each new gadget you buy or replace.

Checklist

• Evaluate goods exactly to claim full compensation later
• Lower premiums by avoiding needless covers
• Replacement policies make sense, especially for all your electronic goods

Accidents can happen to anyone, and the cost of treatment could hurt you as much as the injury. Broadly, personal accident policies cover you for one or more of four contingencies: Death, permanent total disability, permanent partial disability and temporary total disability. Although this policy comes at a low premium, it obviously makes sense to buy it only if you are in a career that is exposed to high risks. For instance, if you run an adventure sports company or are a tennis professional. Also, for youngsters below 30, this cover makes more sense than a standard health cover since the probability of accident is more than that of illness.

Weekly compensation. An excellent benefit that accrues from an accident policy is the temporary disability feature that allows you a weekly compensation, up to a maximum of Rs 5,000, for the period that you cannot attend work because of the accident. "I was unaware of this benefit till a friend pointed it out. It really saw me through the days I was unable to attend work," says Subhas S., a Bangalore-based software professional who had to forgo two weeks of pay when he had a motorbike accident.

The right policy. Categorise the risk category you fall under correctly because the premium will vary accordingly. A higher risk job obviously means a higher premium. "A good balanced figure would be to cover yourself for up to 25 times the monthly income you earn," says Sharma. If you have a householder’s policy as well, add this cover to that policy. You might be able to get a higher discount.

The cover amount also matters in another way. For instance, take the disability compensation clause. It is capped at Rs 5,000 or 1 per cent of sum assured, so it makes sense to take this cover for not more than Rs 5 lakh.

Checklist

• More useful than health cover for below-30 age group
• Evaluate risks. Riskier jobs carry higher premiums
• Opt for weekly compensation feature

Now that you have taken the right policy and maxed the discounts on premium, will things be hunky dory? Not really. The whole process of claiming insurance can often be a nightmare.

Take the case of Manjiri Kalghatgi. She has had more than one unhappy run-in with the insurance companies.

In May 2002, she was accosted and robbed of her car while driving home in her Maruti 800 on a deserted road in Gurgaon. Unluckily, she had all her original documents, including registration and insurance papers, in the car. Fortunately for her, the car was traced in Ajmer a few days later. It took her five months, however, to get it back, in which time the car took a beating. She got her insurance company to pay for the repairs but only after another long wait, since the car had been involved in police procedure.

End of story? No. In a bizarre twist, Kalghatgi’s new blue Tata Indigo was stolen once again, this time within 12 hours of her parking it at home. She duly procured the ‘non-traceable report’ from the local police station, but is still waiting for the surveyor to submit his report, after which the insurer will settle her claim. Meanwhile, she continues to pay off her car loan. "The insurer is delaying payment, while the lender refuses to understand my peculiar problem," she rues.

While Kalghatgi’s case is singular, it clearly shows that there’s more to insurance than simply buying the cover. "The claims settlement process is vital in this business. A quick settlement reflects a satisfied customer, and that is what we work towards," says Antony Jacob, deputy managing director, Royal Sundaram Alliance.

While most insurers say they never shy from meeting a rightful claim, they are obviously in no hurry to settle claims with even the breath of suspicion attached to it. "The major reason for the bad experiences is that consumers are not fully aware of the terms and conditions of the policy. They end up with incorrect expectations," says Arun Agarwal, CEO, Cholamandalam General Insurance.