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Monday, Jan 30, 2012

5 mistakes to avoid while buying online insurance

   [Source : The Economic Times]

Online plans offer convenience. If you too have doubts, consider the following points and ensure that your online ride is smooth

Of late, online insurance plans have gained popularity, spurring investors to use the medium for various reasons-low premium, convenience, absence of agents. Despite this, there is widespread scepticism about purchasing policies online. If you too have doubts, consider the following points and ensure that your online ride is smooth and not rendered bumpy by ignorance.

Submitting incorrect information in form

Just because there's no agent to oversee the filling up of the form, do not 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), say so in the form. If you are a heavy smoker, don't categorise yourself as a casual smoker. This would be tantamount to suppression of a key fact. Keep in mind that the nicotine levels can show up in your blood tests.

"Also, medical tests vary widely from company to company. Some may be lenient, while others could be very strict. It is important that you disclose the facts because later your dependants will have a tough time handling the claim. As it is an online policy, they won't have any agent to argue their case," says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.

How you can avoid it: Obtain all information about your family's medical history before you fill up the form. Disclose all facts about your social habits and lifestyle.

Not comparing all the available options

Unlike other, more complex and sophisticated insurance products, a term plan is a commodity. By and large, its features do not vary across insurers and it all boils down to the lowest premium. However, zeroing in on the cheapest plan is possible only if you have done adequate window shopping and compared the premiums of all the 8-9 companies that offer online term plans. Some buyers believe that a certain company with a higher claims ratio is a better option, but this may not be true. "Comparing term plans is not difficult as most policies have the same features, but it becomes difficult with health policies, as you need to dig out more information, such as hospital network and exclusion clauses," says Deepak Yohannan, CEO, MyInsuranceClub.com.

How you can avoid it: Evaluate and compare plans before you buy. Use an aggregator site to go through the premiums of other plans.

Buying too big a cover for too long a term

Ironically, the biggest advantage of online policies may also prove to be a drawback. The low premium may entice you into taking a cover that is bigger than what you need. "Do not buy a big cover just because the premium is low. Do so only if you need it," says Gopal Kumar, principal consultant, Allons Insurance Research. You may need a Rs 1 crore cover that costs Rs 12,500 a year, but since a `2 crore cover can be bought for an additional payment of Rs 5,000, you jump at the offer. "It may seem like a good deal, but if you do not require that much insurance, you are actually wasting Rs 5,000," explains Pai.

The other problem is that you may take a cover for a tenure that extends well after you stop earning. Some companies offer covers till the age of 75. However, there is no compulsion to pick one that lasts longer than your earning years.

How to avoid it: Though low premium may seem attractive, it should not be the guiding factor while buying a policy. Once you decide that you need a certain level of cover, look for the options that are available online as well as offline. Depending on your affordability, choose plans that offer suitable premiums. "Assess your need and asset-liability situation while buying insurance," says Kumar.

Opting for too short a tenure or low insurance cover

The flip side of the above mistake is taking too small a cover or doing so for too short a term. A life cover of Rs 50 lakh might seem enough right now, but even 6% nominal inflation will reduce its value to about Rs 28 lakh in 10 years. Buy a cover that is big enough to take inflation into account. The bigger mistake is buying a cover for a short tenure. A policy that ends when you are in your 40s is a big waste of money. You are effectively insuring yourself during the low-risk years, but when the risks and liabilities are at a peak, you are without cover. Buying a fresh cover at that age will cost a bomb. What's more, you could be denied insurance if you have developed a medical condition.

How to avoid it: Buy a cover that continues till the time you are 60-65 years old. Also, make sure that you calculate your insurance needs carefully before deciding on the insurance amount. Take into account inflation as well as your other expenses and outstanding loans. Sanjay Tiwari, vice-president, strategy & product, HDFC Life, suggests the use of insurance calculators. These are easily available on the websites of companies and tell you how much insurance you need depending on your income and other factors, such as age.

Not setting up reminders for premiums

With no agent to remind you about paying the premium in subsequent years, the onus of paying on time lies on you. If you miss the due date as well as the grace period for making the payment, the policy will lapse and you will have to buy it afresh. Yes, there is a 15-30-day grace period for paying the premium, but this is only for renewing the policy, not for continuing the cover. In other words, if the premium is not paid and something happens to the policyholder, the company will reject the claim saying that the policy has lapsed.

How to avoid it: The best way to avoid missing the due date to pay premium is to give an ECS mandate to your bank for doing so. In this manner, you can ensure that your precious life insurance cover does not blow away just because you didn't pay the premium. Even if you forget, your bank won't. This also means that you will have to ensure there is enough money in your bank account when the ECS payment is due. You can also set reminders for the premium payment.

Online policies are meant for buyers who understand the need for insurance and know which product they want to buy. One should opt for an online policy only if one is willing to take the trouble of doing the agent's job himself. From submitting the form to paying the premium and rectifying errors, it is your responsibility and you should know how to fulfil it.

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