Online Term Plans-Are they fair priced?

Why we go for online term plans? One of the major reason is they are economical compared to offline prices. Because there will be no middlemen, so charges are less. But are they actually out of middlemen? Premiums are really fair to the risk they take? I doubt it. Let us see the reasons for my doubt.

Life Insurance

This doubt started in my mind when I came across one online portal which compares insurance plans. In order to recommend an online term plan to my client I visited the site and as usual it asked me to input the personal data. I entered the wrong data (to avoid unnecessary mails) except the phone number. Because they send the code to my number then only they display the comparison window. After providing the information and getting back the detailed view of online term plan comparison I forgot the issue. But after that I started to receive the continues calls from that online portal company forcing me to buy the online term plans.

Initially I told them that I did that research for client purpose. But when they started to force me to buy any one of two companies online term plans then I started doubting their motive. I asked them whether there is any price difference between buying online term plan by directly visiting the individual insurance company site or by clicking the tab “BUY NOW” on that particular insurance comparison site. The answer I got is no price difference. In fact I did the comparison also and found no price change.

So if there is no price difference and no middlemen in buying online term plan then why that online comparison company insisting me to buy only any one of the two insurance company term plans which they claiming best in the market? When I asked the executive of that company then he doesn’t have any answer to that.

But what we can assume from this? Yes..your understanding is right. In few online term plans still you find middlemen charges included to arrive at a premium. Otherwise who will do charity by calling me daily and insisting me to buy online term plans on behalf of insurance companies?

How we can judge that the online term plan we are buying is actually fair price? We are Indians and our market runs on price sensitive issue. So can we judge the term plan only by comparing the premium they offer us? A dangerous issue lies here. Suppose Company XYZ is offering a term plan of Rs.1 Crore at Rs.10,000 yearly and Company ABC is offering the same SA term plan for Rs.8,000 then which one you choose? Obviously the first choice will be Company ABC as the price is less than Company XYZ. Then we do research on the claim settlement ratio and how they offer service.

But we still lagging behind in getting the right data on the claim settlement ratio. Because IRDA’s data on claim settlement depict the overall claim settlement ratio but not the particular product called TERM PLAN. If a company is settling all claims (where usually SA will be less than around Rs.10 Lakhs) but rejecting the majority of claims related to term plans then we are unable to track them. Coming to service insurance company offer you, it may be a great company in offering you the best service but who will guarantee you that they offer the same when you will not be there to claim the SA?

Coming back to premium of term plans, no insurance company will be disclosing the exact mortality charges they are charging and what other expenses they are including to arrive at the actual term plan premiums. Also price difference exists may be due to adopting the different mortality rates, business competition or expenses. If we consider these things then they are equally dangerous to endowment plans wherein you are unable to know the exact expenses.

So online term plans are bubbling like ULIPs? Do regulators know all these things and still silent to act once the bubble burst? Let us see how it unfolds.

Let me know some experts’ comments if my understanding is wrong 🙂

32 Comments

  1. Hi Sir,
    First of all thank you for discussing on such topic.
    I want to buy a term insurance of SA 75,00,000 and for this I have compared some insurance companies.
    After reading your article, one doubt that comes in my mind that Is every time this companies reject the claim when SA is above 10-15 lacs ?
    If the answer is “Yes” or most of the time they reject, then why most of the people preffered to choose TERM INSURANCE ?
    Please reply….
    Thank you.

    Reply
  2. dear sir,

    i want to purchased reliance online term plan is this is ok plz suggest me
    thanks and regards

    Reply
    • Shiv-If company suites you, features are acceptable and premium is within your reach then why to worry?

      Reply
  3. Hi Basavraj,

    I am 25 yrs old software engineer and willing to buy online term insurance. What is your opinion about HDFC click2protect term insurance ? Is it good featured , because I am little bit confused between ICICI pru icare and HDFC click2protect. I am nonsmoker and tried for Rs. 1 Crore SA. For HDFC it offers me Rs. 8000 annual premium and ICICI offers me Rs. 11000. So what do you think which is best option ?

    Reply
    • Narendra-Both are good and price difference is due to their underwriting structure. So no need to worry and go ahead according to your comfort. But do remember to disclose all materiel facts without hiding anything.

      Reply
      • Thanks Basavraj.

        Reply
        • Dear Narendra,

          Thank you for considering ICICI Prudential Life Insurance and its online term plan ICICI Pru iCare. From your post we assume that you have indeed done a thorough search on the brand of your choice. We want to take this opportunity to reiterate some points for your consideration:

          1. ICICI Pru iCare allows you to get a cover of upto Rs. 1 crore without any medical tests. To buy, visit: bit.ly/15pbB0U

          2. An important factor to consider while buying a term policy is to check company’s settlement record and not just premium. Refer to the following ET article: bit.ly/NWghEh.

          3. We are committed to honour all claims quickly and fairly. As per IRDA’s annual report for FY13, ICICI Prudential’s claims settlement ratio is one of the best in the industry at 96.29%.

          Please understand that we only offer suggestions based on your requirements, however choosing a policy most appropriate for you remains at your discretion.

          Warm Regards,
          Life Insurance Help
          ICICI Prudential Life Insurance

          Reply
  4. Below i found on ICICI produencial icare term plan one of the close. If possible could you please describe it in simple language, it’s little confusing to me.

    “Policy not to be called in question on grounds of mis-statement after two years: No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the assured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose:
    Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life to be assured was incorrectly stated in the proposal.”

    Reply
    • De-It includes all wordings and exclusions which I can’t explain whole thing on this platform. Hence suggest you to call ICICI Life Insurance customer care, they will explain you in detail.

      Reply
  5. I am 35 years old. I want to purchase term plan Amulya Jeevan – II from LIC, for Rs 300000/- for 25 years. In LIC website the premium calculater don’t have the option to check the premium for term plan and the tebel given for Amulya Jeevan II’s benefits is bit confusing.

    Please let me know if you know about this.

    Reply
    • De-As of now LIC not included this plan on calculator. For 35 year person, SA Rs.30,00,000, term 25 years and for annual payout, premium will be Rs.9,573.

      Reply
      • Thanks for the reply.

        Reply
  6. I’d say, companies are just making ‘more’ money (by saving on the agents commission- and not passing on the benefit. Always customer is being taken for a ride). One can save oneself only by being ‘buyer beware’. Articles like this, by people like Basu, would surely help us.

    Reply
    • Teja-Wonderful understanding. One more updation. I recently got news (I am not sure whether the person commented on my blog or sent me mail) from my reader that one private insurer offered him around 10% discount on online term plan, if he buy it immediately. This seems strange to me also.

      Reply
  7. @Basavraj – You are right. Premiums are so low that anyone can go for term insurance with any financial background.

    Reply
  8. It is very positive situation from ten years back. At least we have many options at very cheap (we can say) rates. The real picture can change drastically if LIC enters in online term plan segment.

    Reply
    • Aman-10 years back plans are available at cheap? I don’t think so. Because online plans were not there and here we are discussing about online term plans. If LIC enters then definitely it will change the market, but I have a strong opinion that LIC will not come out. Because it’s main force is agents which it don’t want to change. If they are intended to launch online term plans, I think they already did that. But they are not thinking about this.

      Reply
    • As an LIC Agent i feel that if LIC enters into online sale of Term Insurance it would follow the same rules. If a Proposer wants tension free Insurance plan, he should be ready to go for medical tests to prove the health conditions.

      Reply
      • Shivakumar-I don’t think medical test is the only consideration by which you can solve this issue. There are other issues involved like why they are quoting such low premium, how they manage the risk or is it reviewed by IRDA.

        Reply
  9. Hi Basu
    My suggestion is to have a health checkup done by the company before the policy is issued then no claim rejection can take place the problem lies in policies taken without the medicals.
    Am I right?

    Reply
    • Sebastian-It is part of the solution. But real picture will come out when IRDA disclose the actual claim settlement ratios of online term plans. So let us wait it to happen 🙂

      Reply
      • Even if we come to know the claim settlement ratio, we will not get the full picture. Who knows, the company might have rejected claims for genuine reasons like misrepresentation of facts/ suicidal deaths/ HIV deaths. How shall we conclude then?

        Reply
        • Sevan-You are right. But at least we move closer to our scrutiny of selection.

          Reply
      • Even when IRDA lets us know the claim settlement ratios, we will not be able to know the true picture. Who knows, the company might have rightfully rejected claims like in case of misrepresentation of facts/ suicidal deaths/ HIV deaths? How can this be compared with frivolous rejections!

        Reply
    • As an LIC Agent, I sell Rs. 5 to 6 Crore worth Term Insurance policies. This year two customers stopped paying and said they are going for Private Insurance companies having less premium. If i try to stop them, they would misunderstand me. I pray to god to save their nominees because i would told that no medical examination is required.

      I am still getting customers for lic term insurance from my website http://www.licbangalore.in. People are there who want to get examined and take Life Insurance plans

      Reply
      • Mr. Shivakumar, I guess even LIC does not carry out medical tests in all applicants right? And kindly do not project as if LIC is the only God-sent solution. There are many cases where even LIC has not settled claims….

        Reply
        • @Sevan, Medical test is required for Insurance more than Rs. 4 lakhs. Online plans are available in lakhs without medical tests.
          Yes LIC is god sent solution for INDIANS. We have so many insurance companies in India. . WHY DID PRIVATE INSURANCE COMPANIES CAME TO INDIA? Did they come to do charity?
          NO.
          They saw the population and that is the reason investment came as FDI Insurance Industry in India. LIC is a TRUST formed by Government of India. LIC pays 5% as dividend to Government of India and balance 95%. Why should LIC distribute all earnings to the policy holders?

          Reply
      • Shivakumar-But it does not mean that LIC is the best. You will find a lot of loopholes when it comes to selling by agents, service issues or how they through the rules to air when they need business. If we start to write on this then there are plenty. So let us not defend any particular company and think about the actual issues current buyers facing.

        Reply
  10. Cheaper Insurance Premiums would make the Policy holder further cheap. Nominees of Online Term Insurance Policy should be brave and strong to run.

    Reply
    • Shivakumar-Well said. We need to analyze each product like if it is providing high return then what risk involved and if it providing us cheaply then what dangers involved in such products.

      Reply

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