“Nothing doing! Now no agent can fool me saying that endowment plans or ULIPs are good. I have understood that only term plan is the best form of risk cover. I am going to buy a term plan online.” Said Niraj, a 29 year old IT professional, to his friend Ashutosh.
“That’s right! Even I have come to know that term plans are the best. But don’t fall in the trap of buying them online. They are all offered by private insurers. One of my friends told me that one should buy insurance only from LIC as it is backed by the government.” Said Ashutosh.
“Ok. Let me guess something. Your friend is either an employee of LIC or an agent of the same. Am I right?” asked Niraj.
“Yes, he is an LIC agent.” Said Ashutosh.
“There you are. First thing, if it’s an LIC agent, he has to pitch LIC over others. So his argument could be totally biased in his own interest than ours. If you compare the premiums, LIC’s term plan is amongst the costliest plans. Why should we go for a costlier plan when we have cheaper options available?” Said Niraj.
“No, he said that, private insurers are charging less premium because they won’t settle the claim later. Or else, how can they afford to cover your life at such low costs?” Said Ashutosh.
“I don’t agree to that. If you look at claim history, there have been cases where even LIC has repudiated the claims, and most generally, even private insurers have settled the claims. There are some other factors why the online term plans are cheaper. They are:
1. Low Cost: Since these products are sold online, they save lot of cost in terms of agent’s commission and branch administration expenses, due to which they can afford to offer a low cost product to the customers.
2. Claim History: Every insurer has its own calculations of risk and claim history, based on which they arrive at the premium amount. Competition also plays a small role in this calculation.
3. Higher comfort with disclosures: According to law, the life insured is supposed to fill details in his application form on his own. But most generally, it is seen that, the customer just wants to sign the form and the agents fill out the details. At times, the agents assume a lot of things and fill out details without verifying from the customer. This is also one of the major reasons of claim rejection, that the customer had not disclosed some material facts to the insurer at the time of buying the policy.
Whereas, in case of an online term plan, the customer has to fill out all the details on himself and thus the company believes that they are getting the right info to assess the risk.
These are the major factors helping the insurers to offer a low cost term plan.” Said Niraj.
“Good to know these facts. Now please also tell me, if I want to buy an online term plan, what all things I should keep in mind?” asked Ashutosh.
“They are as below:
a. First thing is to compute the right amount of life risk cover for yourself.
b. Having done that, second is to find out, the premium for the same from various insurers.
c. Shortlist the top 3 (offering the lowest premium).
d. Next, look at the existence and presence of these 3 insurers. Also, out of the 3, you may compare the claim settlement ratio, track record etc. This is just to re-ensure that the one charging lowest is not just doing it for the sake of competition.
e. Once you have finalized the plan, go online to buy the plan.
f. Fill out all the details with utmost care. Disclose all the information asked in the application form.” Said Niraj.
“But if I disclose all facts, there might be a chance that I have to pay a higher premium?” asked Ashutosh.
“Yes. So what is better? To disclose all facts and pay a higher premium today so that the family gets the claim comfortably later? or to hide facts, pay a lower premium today and the family getting no claim because of hidden information?” asked Niraj.
“Of course, it is better to disclose all facts, pay a higher premium and get claim settled. If the family is not getting the claims, then the whole purpose of buying the risk cover is defeated.” Said Ashutosh. “Ok, one last question; There are some people who are not too tech savvy. How can they avail these online term plans?”
“Good question Ashutosh. Such people can approach an advisor to buy an online term plan on their behalf. Also, they should agree to pay a separate fee to the advisor for this service so that he doesn’t start pushing his own insurance products. If we keep asking for a free service, we will continue getting biased advice.” Said Niraj.
“Great to know all this. Even I will buy an online term plan for myself and secure my family in case of an unforeseen event.” Said Ashutosh.
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(The views mentioned in the article are personal opinion of the author. The characters used in the article are hypothetical)