Yesterday while watching an investor education programme on CNBC TV18, I found some interesting advice about online term plans, advantages over offline, why there is a price difference among insurers and why one must buy only online term plans.
One participant raised an interesting issue by asking “Even though regulator is same, why term insurance premium differ from insurer to insurer and which one should we go, cheaper one or costlier one?”. To this question the so called expert replied and those points are discussed here below.
1) They are cheap because no middlemen-Yes this point is 100% true. But in reality are they totally out of middlemen? Not completely. I raised the same issue in my previous post “Online Term Plans-Are they fair priced?“. You notice that there are still some expenses which you are paying indirectly. Neither no one knows about this nor there are any rules and regulations to disclose the same. So insurers are very much free to not to disclose the real expenses.
2) Because each insurance company follow different rules-This is the valid answer and to certain extent holds good. Each company follow different underwriting rules. Hence analyzing the risk insurance company take will differ. Based on this difference there might be price difference. But once again why IRDA not advising all insurers to follow the same set of underwriting rules or same mortality table? Because see mutual fund industry, expenses are very much open. So many guidelines about how expenses to be set for each product. I am unable to understand and if anything regarding this come to know then will definitely share with you or you are free to share the same 🙂
3) Competition-Because of competition certain insurers may be offering at very cheap price. Competition is always good for customers. But if this is healthy competition then will sustain in long run otherwise it will follow the same footsteps of ULIPs fiasco of Indian Insurance Companies.
4) Buyers healthy lifestyle-The so called expert explained that online term plans are cheap because almost all online term insurance buyers are well educated. These buyers are good earning individuals. They have access to best healthy facilities. They maintain a healthy life style. Hence online term plans are cheap.
What can we say to this argument? I stay in Bangalore, a hub of Indian IT industry. I notice that 99% of so called IT guys may be expert in their filed but they lack in other areas like maintaining their health and finance. They may be consuming food which displays % of calorie they intake. But do they have time to do regular exercise? If such is a situation then how can insurance companies assume that all online buyers are healthy? To be frank persons living in village have more healthy life style as they do much more physical activities in fields than these well educated. These villagers are less riskier.
So going by above four points which usually few use to defend the cheap online term plans, we notice that the trend is not good. IRDA must crack on this, but when will crack is a question.
But at the same time I am a front runner in claiming that YOU MUST BUY ONLINE TERM PLANS ONLY. Because they offer you at cheap rate. At the same time I feel apprehensive about how insurance business is currently running in India. There must be some fair practices which must disclose to customers, so that buyer of such long term product will feel secure.
Image courtesy of [Stuart Miles] / FreeDigitalPhotos.net.