Cheapest online term plans
Buying term insurance online is a smart move, given that it's much cheaper. But should you buy the cheapest plan there is, or should claim settlement ratios influence your decision?
Of all their new products and innovations, online term plans have been one thing the insurance industry has done right. Premiums have stayed cheap, better features have been introduced and two years since it all started, there still seems no reason to return to an offline plan. Even the most expensive online term plans will seem cheap if you’ve bought an offline plan, whether a decade ago, two years ago or even today. Currently, for example, Bharti AXA will offer an online plan with a sum assured of Rs1 crore to a 30-year-old for Rs7865, but an offline plan for Rs15,956. The same company making the same promise at a different price!
The one confirmed reason for this is that there are no commissions, so costs are lower, but commissions on term plans were never so high as to account for a 40-50% increase in annual premium. Experts believe that the reason the gap is so wide is that insurers find net-savvy consumers less risky as they are more likely to lead healthy lives. Remember that internet penetration is still a paltry 10% here.
If you’re shopping around for a term plan, there are two answers you will want:
a) Which is the cheapest plan around?
b) Is cheap insurance a wise choice?
First question first.
Cheapest plan around
In the following table, we’ve compiled the rates of several insurers for four ages – 30, 35, 40 and 45. The term is 20 years and the sum assured Rs1 crore. Keep in mind that these are all pre-medical rates. If an insurer believes you are a risky prospect, expect a relatively significant increase, of as much as 25-30%.
|Insurer||Plan Name||Premium at 30||Premium at 35||Premium at 40||Premium at 45|
|Tata AIA Life||iRaksha Supreme||Rs7,640||Rs10,000||Rs14,270||Rs21,686|
|HDFC Life||Click 2 Protect||Rs10,112||Rs13,214||Rs20,034||Rs31,012|
Now, onto the second question…
Is cheap insurance a wise choice?
If you look for advice on the best insurers, all you’ll run into is the claim settlement ratio of the past few years. LIC of India (LIC) tops the list year after year, but offers only an offline plan, which is expensive even among offline plans. Should you stick with PSB or go cheaper? Here’s our view:
No settling this matter: LIC does top the settlement ratio year after year, but it’s not as if the private sector companies are far behind. In fact, there’s less than two percentage points between the top four insurers – LIC, ICICI Prudential, HDFC Life and SBI Life. Moreover, if you look up consumer court judgements, you’ll find that even LIC refuses claims on frivolous grounds. The insurer was recently fined by a District Forum for ‘not applying its mind’ while denying a claim earlier this year. Furthermore, if you do some research on consumer forums, you’ll find legitimate reason to believe that anyone could have a bad experience with any insurer.
Be honest: The claim settlement ratio is one thing; more important is to be honest while you fill the form. If you do smoke, mention it. If you consume alcohol, inform them. If you’ve had major surgery before, put this down. Insurers are ever ready to deny a claim if there is any chance to. While medical tests are dreaded before buying insurance, it may even be a good idea to submit yourself to one regardless, because, in case of an unfortunate event, it gives the insurer less ammunition to reject the claim.
Vet the company: Not that we have any special information or reason to believe any insurer is on shaky ground, but it does make sense to examine the insurer, rather than compare minor differences in claim settlement ratio, given that we don’t know how many of the claims were rejected on legitimate grounds. You could, for example, reasonably assume that larger insurers are more likely to have a sturdy run over the term of your policy than smaller insurers. As term insurance is all about peace of mind, knowing that the company insuring you is financially secure may be valuable.