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:

www.profit.ndtv.com

www.myinvestmentideas.com

www.fundsindia.com