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.
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bhushan
Hi basu sir,
the on-line term plans are realy works can they give a true hard copy to policy holder for records n if any query how can we discuss..?
Basavaraj Tonagatti
Bhushan-Only the buying process is online. They issue the policy document exactly like offline buying.
D. De Majumdar
Hi Basu,
I hold a term plan with Hdfc life for 15lacs since 2011. However I want to get a higher coverage. If I buy a seperate plan of 30 lacs would the amounts add up in case of a claim?
Can there be any problem in that case? What if both plans are from same provider?
D. De Majumdar
Basavaraj Tonagatti
De-There will be no problem. But do remember that while buying second insurance, you must declare your existing insurance.
sribalaganesh
Sir, It is quite interesting and informating on reading your blogs.
I am 45 yrs and I wish to choose an online term plan for 15 yrs. My doubt is if my death occurs after 60yrs of age(after my policy term period), what will my family get?
Whether my family is protected after my death if it happens after policy term of 15yrs.
Please advise me a right plan.
Basavaraj Tonagatti
Sribalganesh-If your death occurs after the policy term then your dependents will not receive anything.
sribalaganesh
Thanks…sir, Is there any policy with such a benefit?
And please tell me whether Max’s term policy with monthly income for 10 years is better than any other term policy? or advise me a right one for 50 Lakhs and 15 years term.
Basavaraj Tonagatti
sribalaganesh-No there is no such policy on this earth 🙂 Max’s term plan with that offer will fail to consider inflation and again I think premium is at higher side.
Hari
I have one question, Can we believe that private life insurance companies would be there for the policy term of 25-35 years from now, how are they offering such long terms, my question is about the safety of the company itself offering the term insurance. Pls help.
Basavaraj Tonagatti
Hari-There is something called solvency ratio. Whenever they offer you insurance some % of that SA amount must be kept with IRDA. This will be useful when they are closing the company. They can’t run away from responsibilities like that.
Rajiv Ahuja
Interesting read.
Basavaraj Tonagatti
Rajiv-Pleasure 🙂
Anand Doctor
Dear Basu,
Happy to read another good post from you on an important topic.
I’d like to raise a couple of points:
1.While there are websites/web services for comparing the premiums of online term plans, no website actually provides all the relevant details like Solvency ratio, Settlement Ratio for Death claims, Claim Servicing TAT, etc. So people base their decision only on the price i.e. cheapest premium. This can prove to be a mistake. Perhaps a post can written on this..
2.You say “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.”
However, there is a distiction. The core purpose of mutual funds is to professionally manage the money entrsuted to them and no regulator tells them how to do that. Similarly, assessing, underwriting and pricing of risk is a core function of a life insurance company and the underwriter/actuary has to take his call on the same. A regulator cannot dictate that. Of course, greater transparency in what they do is always welcome.
Basavaraj Tonagatti
Anand-Thanks for your comment. I fully agree with your point number one. But related to point two, when I said about regulation like mutual funds, I mean only towards expenses and uniform mortality table consideration. If there is some uniform procedure then even if a particular insurance company’s underwriter feels to be riskier and rise the price, it will not be that much drastic difference which we are now facing. So as you said transparency in such matters will actually clear a lot of doubts about you, me and to buyers.
RitzP
Hi Basu
It does not depend only on the mortality table. Drastic difference is because of the experience and customer base of the company. and you can not follow uniform underwriting guidelines. Its like going to 10 different doctors and hoping that all of them will give you the same medicine.
Basavaraj Tonagatti
RitzP-Exactly….also it depends on their eagerness to grow in this industry 🙂
Pravin Rajput
Don’t compare with prize only because many peoples are fool with the prize tag !
One should always asks the details when buying the insurance whether it may online or offline.
Basavaraj Tonagatti
Pravin-Thanks for your comment. But is it prize or price?