By Sunil Dhawan
The most cost-effective way of buying life insurance is through a pure term insurance plan. These are low- premium, high-cover protection plans where the premium is used entirely, except for a small portion used to meet administrative costs, for risk coverage, i.e. to cover the mortality risk. Therefore, on surviving the term, one doesn't get anything back as there is no saving portion of the premium. In this sense, premium paid for term insurance is similar to the premium paid on car insurance, assuming there is no claim on it. However, this should not deter someone from buying a term plan as getting risk cover through life insurance is one of the basic necessities in one's overall financial plan.
Purchasing term plans: In addition to your friendly neighbourhood agent, one may buy term plans directly from insurance companies by visiting their websites. The process could be as simple as placing an order for your favourite food with a little bit of alertness thrown in. Two strong reasons for someone to go direct and purchase term insurance online could be: Much lower cost than its offline version and the ease in exploring various insurers' websites for a better look at the features, price and availability of the policies.
Price difference: The annual premium for a term plan varies not only according to age, sum assured, term or gender but also depends on whether the plan is bought online directly from insurer's website or through an agent. A term plan bought online can be cheaper by 25 percent or more than its offline version from the same insurer. For example, the annual premium for a term plan for a 30-year old male, on the sum assured of Rs 1 crore and for a term of 30 years, comes to Rs 19,000, if bought offline as compared with Rs 13000 for the same plan bought online (including service tax for both).
Save the savings: Buying a term plan online results in saving. The difference (as per example above) of Rs 6,000 an year (31 percent) may be put to some other use. Investing this amount every year for 30 years (the tenure of the term plan), could add up to Rs 10 lakh, assuming that this amount is invested in equity mutual funds which display an annualised growth of 10 percent.
Protect and save strategy: Buy the online version of a term plan for your desired sum assured and term. Start saving the difference between offline and online premiums through SIP in equity mutual fund schemes. In the above-mentioned example, you are covered for Rs 1 crore for 30-years by paying Rs 3.90 lakh in total (Rs 13, 000 *30 years) and get about Rs 10 lakh on surviving the term.
Online tools: Most websites selling life insurance online offer tools to help you determine the amount of coverage you would need. Experts suggest coverage of at least seven times of one's annual income with a review every five years. Factor in your age, kid's expenses over the years and the standard of living your family currently enjoys. You may then top-it up with existing liabilities like a home loan to arrive at the final figure. Review your insurance needs every five years.
Rider options: Online term plans are increasingly coming out with different features and riders. The offline and online version may not offer similar features or riders. Varun Dua, CEO & Co-founder, Coverfox.com, says, "There are some very interesting riders that are now available with online term plans, including Accidental Death, Premium Waiver and Terminal Illness riders. These additional benefits are useful and must be opted for unless you are restricted by a budget." However, not all online term plans may offer riders. Also, look at the extent of coverage (in terms of illness covered, sum assured, and term) through such riders and evaluate them before adding to the base plan.
There are a few things to keep in mind while buying online term plans:
City Check: Check if the insurer is offering term plans online in your city. For, term plans are not on sale online - in all cities
Speak to insurer: Before you start filling up the online application form, call up the insurer once. Get to know the process including that for medical tests, sending documents and most importantly for filing a claim. Some sites offer live help through chat facility too. The application form can be filled up and the payment can be made online, however documents such as date of birth proof, income proof, among others, have to be sent either by email or by post to the insurer's office.
Get what you need: Purchasing a smartphone is turning more of an informed buy. If someone needs a 2GB RAM, they go for it and do not compromise. Similarly, evaluate your need in terms of sum assured, term, payment option, rider availability etc and then get it confirmed from the insurer. At times, the option of high sum assured is not available in policies offered online. The online version may also have a lower term period compared to offline plans. Getting to know the insurer's restrictions on features helps to avoid last-minute disappointments.
New features: Of late, various new features are being offered in pure term plans. Instead of getting a lump sum payment on the death of the policyholder, there can be a series of payments in addition to the lump sum. For example, 20 percent would be payable on death and the rest in instalments till the end of the term. Also, in case of some plans, the sum assured keeps on increasing every five years. Therefore, while selecting and comparing such plans be sure that similar plans are being compared.
Formalities: There could be medical tests, as per the insurer's underwriting requirement, to be undergone by anyone applying for term plans. Such tests are done at insurer's costs and the report is generally shared with the policy applicant. In case of term plans bought online too, tests may be required for which the policyholder might have to take an appointment with the doctor (from a list of doctors approved by the insurer). At times, post the results, premium may show an increase as there could be 'loading' in premium because of adverse results. The documents required as per the insurer also need to be sent across either digitally after scanning or by courier to the insurer's office.
Drawbacks: Plans offered online may be restrictive in terms of features. Unless you know what the insurer's offline version offers, the online version, which could be a trimmed version, wouldn't be of much help. The absence of an agent or intermediary may be a big drawback for many people. For change in policy details such as address change, nomination etc, the agent is a big help. However, on the online platform, it's just you and the insurer's call centre. Even at the time of claim, it's the family of the deceased policyholder who might have to initiate the claim process and get the documentation in place.
Related: How to choose the right term for your term plan
Conclusion: When it comes to buying pure term plans, do not merely go by the premium amount. Go for the insurer with whom you are comfortable and pick a policy that suits your requirements. "Buying a term plan online is a wise decision. However, you should keep certain things in mind such as the amount of coverage required, liabilities, life stages, income and future expenses etc. Also make sure that you select policies from reputed insurers, and check the company's claim ratio, add-on covers, additional riders, and service standards before finalizing your purchase," says Naval Goel, Founder and CEO, Policyx.com. Remember, buying an insurance policy is a long-term commitment. So, you should get adequate cover only after doing due diligence.
Source: Economic Times
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