Should you buy term plan online?
Term plan is the most basic kind of life insurance wherein if the policyholder dies during the policy period then his family member (nominated person) gets a certain amount (sum assured). This is called the death benefit. But if the policy period is over and the policyholder is still alive then the insurance company does not remit any money back. Thus, there is no benefit on maturity of the policy. However, the most important feature of a term plan is that you will get a very high sum assured for a really low premium amount. For example, A 50-lac cover for a 35-year old male will cost him approximately Rs.5,000/- per annum. This is a really good deal!
We all have a basic idea behind “why we need life insurance(term plans)?”. Basically to protect our family financially, in case something happens to the breadwinner of the family. Buying a suitable life insurance is one of the primary step in financial planning. Among life insurance, term insurance is the best way to secure one’s family which comes with low premiums and high risk coverage.
When buying term plans, there are two modes i.e., offline mode and online mode.
Offline mode is the usual mode that we usually use i.e., through agents or through branches of insurance provider.
Online Term Plans:
Internet is fast picking up as an important channel of distribution for many products and services. Insurance companies distribute their policies through individual agents, branches, banks, brokers and several other channels. The cost of distribution (commission) is high and insurance companies continue to pay commission to the distributor every year throughout the entire policy term. They adopted the online mode of selling and found it to be very effective. Insurance companies don’t have to pay hefty commissions and hence they pass on this saving to the customers by reducing the premium amount. Sounds like a good deal?
Advantages of Online term plans:
The benefit of all pure term plans is the same benefit amount is paid to the nominee on death of the policyholder. However, some of the advantages of buying term plans directly from the website of the insurance company are:
1) Lower premium rates
2) Faster process Instant policy issuance in some cases
3) Less paperwork involved (often paperless process)
4) Completely transparent
5) No health / medical check up for certain age groups
In the market, insurance companies are increasingly introducing online term plans for lesser premiums to customers. However, price shouldn’t be the main criteria for choosing something as important as term insurance. Here are a few pointers that will help you make the right decision between online and offline term insurance.
Is low premium the main criterion for choosing term plans?
Low premium must never be the only criterion for choosing a term plan. In many cases the ‘cheap’ premium paid for online term insurance often jumps up by 25% after the prospective customer undergoes a medical test. Also, after the medical test, if the proposer would like to decline the policy, the amount paid will be refunded to him only after the cost of the medical test that was borne by the insurance company has been deducted.
Claim Settlement Ratio
The claim settlement ratio for online insurance is not required to be mandatorily disclosed by insurance companies to the Insurance and Regulatory Development Authority (IRDA). As per IRDA guidelines, such a ratio declared by insurance companies is the combination of both online and offline insurance plans. Further, the lack of data available on the claim ratio of online plans hinders its clarity.
The claim settlement ratio for online insurance is not required to be mandatorily disclosed by insurance companies to the Insurance and Regulatory Development Authority (IRDA). As per IRDA guidelines, such a ratio declared by insurance companies is the combination of both online and offline insurance plans. Further, the lack of data available on the claim ratio of online plans hinders its clarity.
Best Term Insurance Plans in India
| Company | Total Claim Received (Pending from last year+This year) | Claim Paid | Claim Settled Period | |||
| Nos. | % | Within 30 days | 31-90 days | More than 90 days | ||
| LIC | 7,50,576 | 7,33,545 | 97.73% | 6,20,881 | 60,040 | 52,624.00 |
| ICICI Prudential Life | 14,948 | 14,393 | 96.29% | 13,736 | 362 | 295.00 |
| HDFC Life | 6,253 | 5,988 | 95.76% | 5,338 | 602 | 48.00 |
| SBI Life | 13,426 | 12,676 | 94.41% | 11,217 | 1,379 | 80.00 |
| Max Life | 9,051 | 8,531 | 94.25% | 7,119 | 1,252 | 160.00 |
| Kotak Life | 3,089 | 2,843 | 92.04% | 2,326 | 398 | 119.00 |
| Star Union Dai-lchi | 738 | 662 | 89.70% | 246 | 231 | 185.00 |
| BhartiAxa | 1,046 | 936 | 89.48% | 654 | 213 | 69.00 |
| Bajaj Allianz | 27,282 | 2,4192 | 88.67% | 1,7635 | 5,175 | 1,382.00 |
| Canara HSBC | 597 | 528 | 88.44% | 217 | 187 | 124.00 |
| Aviva | 2,433 | 2,134 | 87.71% | 1,825 | 283 | 26.00 |
| Reliance Life | 21,412 | 18,511 | 86.45% | 13,221 | 4,731 | 559.00 |
| Sahara Life | 955 | 809 | 84.71% | 270 | 299 | 240.00 |
| Tata AIA | 4,884 | 4,125 | 84.46% | 3,143 | 706 | 276.00 |
| ING Life | 3,312 | 2,780 | 83.94% | 2,241 | 292 | 247.00 |
| PNB Metlife | 2,405 | 2,017 | 83.87% | 1,747 | 204 | 66.00 |
| Birla Sunlife | 9,871 | 8,149 | 82.55% | 6,320 | 1,457 | 372.00 |
| IDBI Federal | 687 | 550 | 80.06% | 550 | 0 | 0.00 |
| India First | 916 | 654 | 71.40% | 635 | 19 | 0.00 |
| Future Generali | 1,941 | 1,369 | 70.53% | 837 | 434 | 98.00 |
| Shriram Life | 1,602 | 1,079 | 67.35% | 648 | 316 | 115.00 |
| AegonReligare | 422 | 282 | 66.82% | 248 | 34 | 0.00 |
| Edelweiss Tokio | 22 | 10 | 45.45% | 4 | 6 | 0.00 |
| DLF Pramerica | 614 | 166 | 27.04% | 5 | 15 | 146.00 |
Source: www.policybazaar.com
Premium Comparison
The premium of online term plans varies from company to company and this leads to a lot of confusion among customers. The premium is factored based on various parameters like mortality rates, cost of medical tests and marketing costs.
Disclosure of Facts
In online plans, individuals need to fill up all the relevant details which one knows about oneself very well. Hence online plan comes with complete disclosure of facts and then term plan is given. On the other hand, one could be negligent and dependent on the agent to fill up the form. Any non-disclosure of facts by the agent in the policy could lead to rejection of claim at a later point of time.
Rider Benefits
One of the biggest drawbacks of online term plans is that death coverage + accidental death coverage (with additional premium). However in offline mode we can avail rider options like critical illness, disability, partial disability and few others.
Consequences of non-disclosure of important information:
One should never submit incorrect information. The insurance company can reject a claim if it discovers that certain key facts are wrong or have been deliberately hidden by the policyholder. The main objective of the policy would go up in thin air if a claim is rejected. If a close relative has suffered from any of the specified ailments (diabetes, heart problem, hypertension), this info needs to be mentioned in the form. Accurate information about smoking habits also need to be disclosed. This would be tantamount to suppression of a key fact. One should be aware that during blood test, the nicotine levels show up
It is important that one discloses the facts because later thedependants will have a tough time handling the claim. As it is an online policy, there won’t be any agent to argue thecase,.One can avoid this by obtaining all information about his/her family’s medical history before filling up the form. Disclosing all facts about social habits and lifestyle.
Additional information consequences of no medical tests in online mode:
‘No medical tests required’, we find this clause blatantly used as a catchy ads for a prospective buyer. But is it really worth buying a term insurance without undergoing medical tests?
The purpose of undertaking medical tests before buying a term insurance is to determine the health quotient of the applicant. Based on the test results the insurance company gives a customized insurance plan. However, otherwise if one goes for a term plan that might not requireto take immediate medical tests, it is not without risks. This might have repercussions in the long run. Let’sunravel the truth behind it.
a) Higher Probability of Claim Rejection
The exemption from medical tests does not mean one can sweep your health problems under the carpet. It will still be needed to make a statement about health condition in the application form. If one hides a health condition, it can have severe consequences on the insurance cover. Roughly, 2-3 % of claims end up in the trash due to this every year.
b) Pay More Premium
The insurance company decides the premium based on risk perception. Taking a medical test prior to buying a term policy can significantly lower your premiums.
Let’s understand this with an example: Two persons applying for the policy undergo a medical check-up. One comes up with normal sugar level and other with a borderline case. The one with normal sugar level is required to pay lower premium as compared to the other. However, if the policy didn’t require medical tests then both of them would end up paying the same amount of premium. Certainly, a loss for the healthy applicant.
Lesser Risk Coverage
The policies that encourage ‘No Medical Test Required’ theory are generally low-value plans. Even if you are young and healthy, no insurer will provide a cover of more than 5 lakh without a medical test. Therefore, for high insurance cover medical examination is neccessary.
VarshaGaikwad- Para Planner Advisory
Dilzer Consultants Pvt Ltd.
Sources:
27 May 2016