“Nothing doing !! Now no agent can fool me saying that endowment plans or ULIPs are good. I have understood that only term plan is the best form of risk cover. I am going to buy a term plan online.” Said Niraj, a 29 year old IT professional, to his friend Ashutosh.

“That’s right !! Even I have come to know that term plans are the best. But don’t fall in the trap of buying them online. They are all offered by private insurers. One of my friends told me that one should buy insurance only from LIC as it is backed by the government.” Said Ashutosh.

“Ok. Let me guess something. Your friend is either an employee of LIC or an agent of the same. Am I right ?” asked Niraj.

“Yes, he is an LIC agent.” Said Ashutosh.

“There you are. First thing, if it’s an LIC agent, he has to pitch LIC over others. So his argument could be totally biased in his own interest than ours. If you compare the premiums, LIC’s term plan is amongst the costliest plans. Why should we go for a costlier plan when we have cheaper options available?” Said Niraj.

“No, he said that, private insurers are charging less premium because they won’t settle the claim later. Or else, how can they afford to cover your life at such low costs?” Said Ashutosh.

“I don’t agree to that. If you look at claim history, there have been cases where even LIC has repudiated the claims, and most generally, even private insurers have settled the claims. There are some other factors why the online term plans are cheaper. They are:

1. Low Cost: Since these products are sold online, they save lot of cost in terms of agent’s commission and branch administration expenses, due to which they can afford to offer a low cost product to the customers.

2. Claim History: Every insurer has its own calculations of risk and claim history, based on which they arrive at the premium amount. Competition also plays a small role in this calculation.

3. Higher comfort with disclosures: According to law, the life insured is supposed to fill details in his application form on his own. But most generally, it is seen that, the customer just wants to sign the form and the agents fill out the details. At times, the agents assume a lot of things and fill out details without verifying from the customer. This is also one of the major reasons of claim rejection, that the customer had not disclosed some material facts to the insurer at the time of buying the policy.

Whereas, in case of an online term plan, the customer has to fill out all the details on himself and thus the company believes that they are getting the right info to assess the risk.

These are the major factors helping the insurers to offer a low cost term plan.” Said Niraj.

“Good to know these facts. Now please also tell me, if I want to buy an online term plan, what all things I should keep in mind?” asked Ashutosh.

“They are as below:

  • First thing is to compute the right amount of life risk cover for yourself.
  • Having done that, second is to find out, the premium for the same from various insurers.
  • Shortlist the top 3 (offering the lowest premium).
  • Next, look at the existence and presence of these 3 insurers. Also, out of the 3, you may compare the claim settlement ratio, track record etc. This is just to re-ensure that the one charging lowest is not just doing it for the sake of competition.
  • Once you have finalised the plan, go online to buy the plan.
  • Fill out all the details with utmost care. Disclose all the information asked in the application form.” Said Niraj.

“But if I disclose all facts, there might be a chance that I have to pay a higher premium?” asked Ashutosh.

“Yes. So what is better? To disclose all facts and pay a higher premium today so that the family gets the claim comfortably later?? or to hide facts, pay a lower premium today and the family getting no claim because of hidden information ?” asked Niraj.

“Of course, it is better to disclose all facts, pay a higher premium and get claim settled. If the family is not getting the claims, then the whole purpose of buying the risk cover is defeated.” Said Ashutosh. “Ok, one last question; There are some people who are not too tech savvy. How can they avail these online term plans?”

“Good question Ashutosh. Such people can approach an advisor to buy an online term plan on their behalf. Also, they should agree to pay a separate fee to the advisor for this service so that he doesn’t start pushing his own insurance products. If we keep asking for a free service, we will continue getting biased advice.” Said Niraj.

“Great to know all this. Even I will buy an online term plan for myself and secure my family in case of an unforeseen event.” Said Ashutosh.

We look forward to your feedback and comments on the above article. Please feel free to contact us on saurabh@nidhiinvestments.com if you have any questions.

(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical)

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4 Comments

  1. I had a bitter experience with online policy. I made payment etc and never received policy documents. When tried to call them, I was told my cheque is not clear yet. Funny thing was I made payment by credit card, but customer care executive even gave my cheque number. Since then I prefer to give some good agent chance for his comission but buy offline (ofcourse policy of my choice not his).
    I am not at all suggesting that should not buy online, just giving an area you should lookout while buying online.

    Its a good article and totaly agree with points of how to choose a good policy, very well explained. But frankly, why emphasis online even when through agent till you insist on policy of your choice?

    1. Thanks for the valuable insights Sir !!

      Yes, at times there could be issues related to the systems of online transactions. In fact, till the time our online systems become too robust, we need to be ultra-careful while transacting online – Be it insurance or any other transactions. Thus, in such cases, it could actually better to go through an agent to buy a term plan.

      But as you rightly said, one should first do his homework to find the right policy for him before approaching the agent, so that he does not succeed in selling (read mis-selling) you a policy of his choice.

      Thanks again for your visit and feedback. Your comments always add glory to the article page. Looking forward to more in future.

  2. Hello Sir,

    I have been readin your posts for sometime (years) now and have been telling my dad, uncles and everyone to read it and implement the ideas.

    After a long stint at colleges, I have finally started earning and the first thing I had to do was to apply all your tips and revisit the mistakes that may have been done for a kid by his dad.

    The foremost thing I would like to do is to surrender the endowment plan in my name and start a term plan. After studying law, thankfully, I have gained the patience of reading the fine prints.

    The first thing that came got my attention on comparing the (cheaper) Term Plans, is the meaning of Death and exclusions therein, mentioned in the offer documents. (Like that of ICICI Pru iCare Online Term Plan or Aegon Religare iTerm Plan). They seem to exclude death due to adventure activity, water or air sport etc.
    Further, they ask me to opt for Accidental Riders, wherein I get some life cover + accidental cover on paying of additional premium.

    My doubt now is (in light of the Accidental Riders etc.),
    What kind of death is actually covered by these insurance policies ??
    If I plan to opt for a term plan, I go for it for situations where the death cant be foreseen.. For probable causes, i.e., old age, bad health or any other such cause, I am anyways expecting myself to survive the maturity limit (I am 26 right now) and planning to invest in SIP/Mutual Funds and other ‘íntelligent tools’ and the untimely deaths which I want to cover and expect is either due to road accident, air crash or since I am an adventure enthusiast, during such a ‘risky activity’.
    The issue is, these policies mention only accident as any clarification of death, rest I assume is natural death they are talking about.

    In such case, I am confused as to what kind of/which plan should I select !!
    Life Insurance, for me, is to meet exigent situations, which if excluded per se by these plans, the whole purpose becomes futile !!

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