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News & Views

Monday, Oct 22, 2012

Sceptical about online insurance plans? Here's why they are safe

[Source : The Economic Times]

You can afford to buy a three-bedroom house, take your family for a holiday abroad, and upgrade to a new car every few years. But can you afford to die? "This is the first question that everyone needs to answer.

If other people are dependent on your income, your first priority should be life insurance," says John Holden, CEO of CanaraBSE 0.40 % HSBC OBC Life Insurance.

Covering your life has never been so affordable. The entry of low-cost online term plans means that a 30-year-old man can buy a cover of Rs 1 crore for as little as Rs 20-30 a day.

That's what you pay for parking your car at a mall. It's very easy too. It takes only 30-40 minutes to fill up the online form and you are done. Of course, you will have to submit documents and, in most cases, there will be a thorough medical check-up before the policy is issued.

The low cost of cover and the ease of buying has made online term plans a huge hit with buyers. In the past six months, roughly 55,750 term policies have been sold online. This is a big jump over 2011-12 when 49,500 plans were sold online in the entire year.

Online insurance seller gets almost 2,600 enquiries for term plans every day. The portal has sold 33,800 online term plans (or 60% of the total) in the past six months, averaging more than 140 policies per day.

Despite the rise in sales, insurance buyers continue to look at online term plans with scepticism. The big worry: will the company reject my claim? The low premium charged by online term plans has given rise to these concerns. The agent community plants more doubts by painting online term plans as risky policies that may not give the claim.

A telemarketing executive told ET Wealth that "you won't get any service because there's no intermediary in an online plan". This is not true. Agents see online term plans as a big threat to their livelihood and are, therefore, spreading such canards. So powerful is the agent lobby that the Life Insurance Corporation, which had planned to launch an online term plan in August 2011, has shelved the idea. The LIC offering would have been a game changer because a lot of buyers believe that its high claim settlement ratio makes it the most trustworthy insurance company.

As we have explained in the previous story, the claim settlement ratio may not be the best way to judge an insurance company. You can buy a cover from any of the 10-odd companies that offer online plans or even go for an offline policy. Just keep in mind that the passing of the claim does not depend on the settlement ratio of the company but on the accuracy and completeness of the information you submit in the form. Term plans are very straightforward products and you can rarely go wrong while buying one. Even so, here are a few things to keep in mind when you take an online plan.

How big is the insurance cover?

Your term insurance cover should be large enough to cover all your liabilities. It should give your family a corpus to generate an income that takes care of the basic expenses, meets major financial goals, such as marriage of children, and settles other liabilities like home and car loans. So take a big enough insurance to cover all these needs.

How long is the tenure?

The term of your policy is also very important. An insurance policy should cover a person at least till the age of 60-65 years. Don't take a short-term policy of 15-20 years that will terminate when you are in your 40s. The insurance needs of an individual peak at that age. Buying a new term policy in your 40s will cost you a bomb. You might even be denied the cover if your health is not good.

How solid is the company?

Your term plan is a long-term contract, but there are indications of a likely shakeout in the insurance industry. Smaller players may merge with larger companies. The insurance regulator will ensure that all policies are honoured by the new owners, but it's a worrisome scenario for customers. CEO Deepak Yohannan says that to avoid losing sleep, choose a company that is doing well and is not likely to shut shop in a hurry.

Have you reviewed your cover?

Buying insurance is not a once in a lifetime affair. Review your cover every time there is a change in your life situation. You may need to add more insurance when you start a family or take a loan. Besides, you need to factor in inflation. A cover of Rs 50 lakh may seem big enough today, but will not be sufficient 10 years down the line.

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