Direct Plans in Insurance: Save Money and Secure Your Future

Many people believe that insurance is a type of product that needs to be pushed onto customers, as they don't often recognise the importance of having it until a major event occurs. This is why intermediaries like agents or brokers are necessary to facilitate communication between insurers and customers and persuade them to purchase insurance. Nevertheless, as people become more informed about the advantages of insurance, especially after the Covid-19 pandemic, they are beginning to seek out and purchase insurance policies online independently. In light of this, the Insurance Regulatory and Development Authority of India (IRDAI) has given new guidelines on direct plans for insurance, also known as direct-to-consumer insurance plans.

The apex body has requested the life insurance, non-life insurance, and standalone health insurance companies to develop a policy approved by their board for the insurance policies obtained directly through the insurers, without any intermediaries. The insurers are also asked to create a strategy for lowering premiums for the policies that are obtained directly by the policyholder.

The IRDAI, in its gazette notification, said, "Every insurer shall have a well-documented policy approved by its board on an annual basis, which shall specify the manner of transfer of benefits, arising from reduction of expenses and/or from directly sourced business to the policyholder by way of reduction in premium."

In the past, purchasing an insurance policy involved multiple steps, such as visiting an insurance agent, submitting necessary documentation, and waiting for paperwork processing. However, nowadays, most of this can be done online, resulting in faster processing times. Besides, the consumers are aware of the insurance concepts and processes, unlike a few years back. As a result, in recent years, there has been a significant increase in policies sold through online platforms, mainly through direct websites.

Direct Insurance Plans can be purchased directly from an insurer, typically online, without an intermediary. With direct insurance plans, policyholders can visit the insurance company's website and complete the transaction online to purchase the desired policy. Nowadays, all insurance companies have their own portals to engage with potential buyers and existing policyholders. Customers can now interact directly with the insurers to purchase a plan or raise a claim, which eliminates delays in the process due to the absence of a third party. Take note that purchasing a policy through a third-party portal does not fall under the category of direct insurance plans. Moreover, once you have bought an insurance policy through an intermediary, you cannot switch to a direct plan.

When the policyholder purchases an insurance policy without any intermediary like an agent or broker, it essentially lowers the Expenses of Management (EoM). EoM is determined as a portion of the premiums received and comprises commissions as well as other expenses such as employee costs, technology expenditures, administrative expenses, and similar costs. However, previously, insurance companies could sell policies directly without offering any discount against the commission saved. But now, the regulator has made it clear that insurers must provide this benefit to policyholders.

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Let's see the benefits and drawbacks of Direct Insurance Plans.

Benefits of Direct Plans:

1. Direct Insurance Plans are similar to direct mutual funds, which allow individuals to invest in schemes directly; without involving a distributor or agent. Similarly, direct insurance plans offer the freedom to purchase an insurance policy as per your convenience and availability, without anyone pursuing you to buy a specific policy.

2. Buying an online policy directly from the insurer is very convenient as you can purchase the policy from the comfort of your home. You can also customise the plans, especially term insurance and health insurance plans, by purchasing additional riders and add-ons.

3. Since insurers now offer direct plans without built-in commission fees, these plans are more affordable than the traditional way of purchasing insurance.

Direct Insurance Plans have their advantages and disadvantages. Here are some of the drawbacks of Direct Plans:

One of the disadvantages of direct plans is that brokers offer you an array of options, from premiums to exclusions and claims settlement ratios, and can give you various choices before finalising the policy.

Buying through an agent or broker has several benefits, such as multiple offers from different companies, purchases from a trustworthy and known person, and assistance in the claims settlement process.

Insurance can be a complicated product for many individuals, and they may require guidance and handholding, which could be difficult without the help of a broker.

Should you buy Direct Plans in insurance?

As we had discussed in the earlier article, one of the main directives given to insurance companies is to establish a clear policy regarding the commission structure for agents and brokers. Additionally, they must implement measures to reduce their EoM.

Direct Plans have cost benefits since they have no built-in commission, making premiums more affordable than the traditional way of buying insurance plans. However, customers did not prefer buying insurance through direct plans in the past because there was no discount offered by the insurance companies and they wanted to understand the product and make a comparison of price and features with an expert, typically whom they personally know.

Which route to take to buy the insurance policy depends on your knowledge regarding the insurance product, your understanding of the insurance company, and how familiar you are with the online purchase, renewal, and claim settlement process of the policy. If you are familiar with the insurance company, the plan, and the claim process, it is advisable to go for the direct purchase as it will help you save on the premium amount.

Even if you are not familiar with the insurance terminologies and do not know how to select the right policy, there are many websites, including PersonalFN, that aim at educating the customers and allow them to compare different plans, helping you choose the best-suited insurance policy. However, if you are new to insurance, need proper guidance, and are not confident to purchase and make the claim settlement on your own, you may opt for the traditional buying process. Take note that once you buy an insurance plan through an agent, you cannot switch to a direct plan.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.