It’s that time of the year when showrooms put up huge banners screaming “Discount” and “Sale” as they try to get rid of merchandise that may not find buyers till next year. But right now, something far more precious than off-season apparel and household appliances is being sold at unbelievably low prices. Term plans, which are seldom pushed by agents but are arguably the best form of insurance, are being sold at premiums 40-50% lower than what they were about 1-2 years ago.
"The term insurance plan I bought five years ago for Rs 11,500 covers me for Rs 20 lakh for 25 years. Now I am 45 but the same premium can buy me a cover of Rs 35 lakh for 20 years," says Delhi-based businessman Sanjeev Agarwal.
Much of this has to do with the growing competition in the insurance market. More than 20 private insurance companies have set up shop in India after the insurance industry was reopened to the private sector 10 years ago. Some of the newer players, desperate to get a toehold in an overcrowded market, are offering lower premium rates to attract customers. They are encouraged, in part, by the improving life expectancy figures in the country. Advances in medical science and improvement in health care facilities have pushed up life expectancy in India. The average Indian now lives up to almost 65 years, compared to about 55 years in the 1980s and 58 years in the 1990s.
Many life insurance companies have taken this reality into account and rejigged their mortality tables to align with the lower risk of death. Old products have been discontinued or the premium has been revised accordingly. "Earlier all insurers followed the old LIC mortality tables. But all insurers are not relying on the LIC tables. So, pure protection products now being launched are cheaper," says Manik Nangia, Corporate Vice-President, Product Management, Max New York Life Insurance. The Platinum Protect plan from Max New York Life is about 40% cheaper than the earlier term offering which has now been phased out. "The premium on our term insurance product has come down by around 40% since it was introduced," adds Andrew Cartwright, Chief Actuary, Kotak Mahindra Old Mutual Life Insurance.
However, some insurance companies have stoutly stayed away from this mega sale. There's no change in the premium rates of the state-owned Life Insurance Corporation or those of Reliance Life Insurance. "There's a difference of up to 50% in the highest and lowest premium quote of term plans across various insurers," points out Rahul Aggarwal, CEO, Optima Insurance Brokers. An LIC spokesperson defends his company's policy, saying that "more than talking about the premium and how cheap it is you need to take into account the chances of your family getting the claim amount if something happens to you". Indeed, LIC has a claim rejection ratio of 1% compared to 20-25% of some private players.
There are more goodies in store. Online term plans, where a customer buys the policy directly from the company, are up to 35% cheaper than their offline versions (see table). By removing the intermediary between the customer and the company, the world wide web has helped bring down the price of the cover. Says Madhivanan B., Executive Director, ICICI Prudential Life Insurance: “The online channel lowers the costs of processing and servicing, which we pass on to customers.”
The other reason for this discounted rate is that the online buyer figures low in the risk matrix. He is young, well-educated, reasonably well-off and an urbanite. He may not be the cream of Indian society, but he’s certainly the thick upper crust. Online term plans, some of which are available only in select cities, also have a higher maximum age. You can take a term cover up to the age of 75 years compared to 60-65 years earlier. Insurance companies realise that the better access to healthcare in urban areas means that city dwellers have a longer life span than the average Indian.
Online insurance is a little bit like online tax filing. There's some paperwork still to be done. You fill up the form online and the cover starts immediately after you make the payment. But you have to submit certain documents as proof of income, age and identity. "We are also working out the option where our customers can submit these documents online," says Yateesh Srivastav, chief marketing officer, Religare Aegon.
Even with that, the transaction will not be completely online. The insurer will also subject you to rigorous medical tests to know if you are indeed as fit as a fiddle as you might have claimed. In some cases, where the cover is very small, no medical tests are required. This limit varies across insurers. For instance, Aegon Religare, does not ask for a medical test from people who go for a cover below Rs 50 lakh. If something shows up in the medical test, the person may find his premium getting bumped up. The additional premium can be paid by logging on to the website again.
However, where no medical tests take place the life cover starts immediately on premium payment. The insured person recieves a temporary certificate by email which remains valid till the policy documents reach him.
The online advantage has been an instant hit with insurance buyers. Aegon Religare Life Insurance, which pioneered the concept in November 2009, has already sold more than 10,000 iTerm policies with an average cover of Rs 70 lakh in the past one year. The national average cover for all insurance policies, including Ulips and traditional products, is Rs 95,000.
Industry experts say online buying of insurance products will increase in future as Internet penetration in India improves. Right now, only 7% of the population has access to the Net. “Until now, life insurance companies had not fully utilized the medium’s potential. The independent buying of financial products and services will increase exponentially over the next few years,” says G. Murlidhar, COO and CFO, Kotak Life Insurance.
Should you switch
The low premiums are tempting existing policyholders such as Agarwal to dump their term plans and buy afresh at lower rates. That makes a lot of sense, but should be done after careful consideration.
“Keep in mind that your health might have deteriorated since the time you bought your existing plan," advises Amitabh Chaudhry, managing director and CEO of HDFC Life. That's why you should not be in a hurry to terminate your existing plan. If you find that you can get a similar cover at a lower price, first buy the new policy before you junk the old one. Sometimes an insurance company may reject an application if some condition shows up in the medical examination.
Even if it doesn't outright refuse to insure you, it might bump up the premium, making it as costly if not more than the existing policy. Also, remember that some risks are not covered in the first year of the policy. That might mean you need an overlap where you will have two policies running but will ensure that you are not left uncovered.