Online / Offline - Which TERM PLAN will you go for?
| The Financial Planning Newsletter [Issue 23] August 30, 2011
Mr. Khanna aged 30 years from New Delhi wanted to buy a term plan for the protection of financial future of his family, so he started evaluating various options. He compared quite a few term plans offered by different insurers, and made a summary table (given below) of premiums charged by different insurers for Rs. 50 lakhs sum assured for 20 years.
Source: Respective company website
|S.No. ||Insurance Company ||Policy Name ||Mode ||Premium (Rs.) |
| 1 ||Aviva Life ||i-Life ||Online || 4,436 |
|2 ||Aegon Religare ||iTerm ||Online || 5,200 |
|3 ||Met Life ||Met Protect ||Online || 5,294 |
|4 ||Kotak Life ||e-Preferred ||Online || 5,487 |
|5 ||ICICI Prudential Life ||i-Protect ||Online || 5,791 |
|6 ||Birla Sun Life ||Protector Plus ||Offline || 7,721 |
|7 ||SBI Life ||Smart Shield ||Offline || 7,956 |
|8 ||Max New York Life ||Platinum Protect ||Offline || 8,050 |
|9 ||HDFC Life ||Term Assurance ||Offline || 10,556 |
|10 ||LIC ||Amulya Jeevan ||Offline || 12,850 |
But the above table, rather than meeting his needs, confused him even more as life insurance giant LIC offered a Term Plan named LIC-Amulya Jeevan at yearly premium of Rs. 12,850 while a relatively new entrants Aviva or Aegon Religare offered a same featured Term Plan for Rs. 4,436 and Rs. 5,200 respectively.
He started wondering how can company like Aviva started in 2002 and Aegon Religare started in 2008 offer term plans for such a cheap price when biggest player in the life insurance industry (LIC) is charging 2-3 times of their premium.
The problem faced by Mr. Khanna has become very common these days as most of the people get confused seeing such a difference in the lowest and the highest premium term plans.
Why is there so much difference in premiums charged by different insurers?
The difference in premium is mainly because of the following reasons.
Is such a low premium charged by insurers justified?
- Increasing competition between various life insurers to tap the untapped market
- Absence of intermediary between insurer and customer i.e. Agents commission is not included in online term plans
- Operating and various other miscellaneous expenses of life insurers are saved, the benefit of which is passed on to customers
- Past Claim experience of the life insurer
- Assumptions on investment return for different insurers are different
- Online Term Plans target a certain customer segment by offering it only in selected cities
Every life insurer has their own way of determining the premium to be charged based on some assumptions. These low insurance premiums are also helping insurers to penetrate their business into the untapped Indian market. It's good for the insurers and the customers as long as these assumptions taken by the insurers turn out to be right, but if these assumptions go wrong in the long term, it could seriously impact the rights of the policy holders.
If these assumptions go wrong and insurers start facing too many death claims from the policy then the insurers will start making losses. At that time Insurers will have 2 options: Either promoters should infuse more capital to settle the claims or start rejecting claims by giving some unacceptable reason.
Pricing of online term plans is justified or not, we will come to know about it only in the long term or when the life insurance giant LIC will come up with its own online term plan.
Should you go for Online Term plans?
Online Term plans in its true sense are not at all a bad product. It provides you the convenience to buy the life insurance at the click of the button, it also reduces premium amount for the policy and saves you from being cheated by the insurance agent. But before buying an online term plan just make sure of below mentioned points:
Keeping these points in mind will make sure that whatever premium you are paying towards your life insurance policy is not getting wasted because of uncertainty claim settlement in the future.
- You should disclose all the facts like your health history, family health history, smoking habits, occupational details and any other facts which could lead to rejection of the claim in the future.
- Make sure you fill your complete details yourself while taking the policy
- Don't forget to read the terms and conditions of the policy before buying any policy
- Buy it from the insurer who has been in this business in Indian market for a number of years
- Buy it from the insurer who has good claim settlement track record
Now you can easily go and buy life insurance, or rather you can buy peace of mind....
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