Is the cheapest online term plan the best?
Is the premium amount all you should consider when getting a term plan? Here we tell you what else you should look at, apart from the premium amount, when getting such a plan.
Insurance behemoth, Life Insurance Corporation of India (LIC), has jumped onto the online term insurance bandwagon this week. Like its regular term plan, the cost is pegged a tad higher than most other insurance term offerings.
The benefit of an online term plans is that it does away with the insurance middlemen and so you save on the commission paid to the agent (from your premium). Online term plans help you save as much as one-third to half the amount paid as the premium when compared with offline plans.
But then is premium (see table) the only consideration when opting for a term insurance plan? We walk you through other factors to consider.
Online Term Plan premium for a Rs50 lakh cover
|Insurer||Annual premium (Rs)|
A term insurance plan is one where the heir of the insured gets the sum assured upon the death of the policyholder. This is the simplest form of insurance on offer and hence it makes sense to directly compare premiums. But a few other essential factors need to be considered as well. Here are five parameters that you should assess, apart from the premium, when choosing on an online term insurance plan.
Maturity age offered
Insurance companies offer a maximum maturity age between 65 and 80 years of age. The higher the maturity age, the better it is for the policyholder as this increases the chance of a payout. LIC, SBI Life and Bajaj Allianz offer a 70-year maturity age, while HDFC Life and ICICI prudential offer a 65-year maturity age. Tata AIA Life has a product with a maturity age of 80 years.
Higher policy term
The period for term insurance used to be 25 years, but the scene is changing and insurers offer a term ranging between 35 and 52 years as well. The higher the term, the better for you, as you need not purchase a second term cover when you are older. ICICI Prudential, HDFC Life, Bajaj Allianz and SBI Life have a term of 30 years. LIC, Reliance Life, Aviva Life and PNB Life provide a term of 35 years, while Tata AIA Life and India First offer a 40-year term.
The premium quoted online or through charts is just an indicative premium and your actual cost may escalate if your medical tests reveal any health conditions. A smoker would have to cough up 25-30% more. So, find out your actual premium before settling on any options.
Claim rejection ratio
This is an important factor to look at before choosing an online term plan. An insurer may be offering the cheapest term plan, but if it rejects 40% of the claims before it then your money paid over the years may be headed down the drain. Companies with a strong financial background and that are reliable in terms of claim settlement should be considered. As per IRDA, LIC (97.73%), ICICI Prudential Life (96.29%) and HDFC Life (95.76%) rank high in terms of claim settlement. Edelweiss Tokio has a rejection ratio of 40.91%, while Aegon Religare rejected 33.18% of its claims in 2012-13.
Ease of claim handling
Your beneficiary should not be left running from pillar to post to make the insurance claim. Also, several insurers have a long list of pending claims. So, study the past records of the insurer before taking up a term plan. For instance, Reliance Life, Shriram Life, SUD Life and ING Life Insurance have about 5% of their claims pending as per IRDA’s 2012-13 Annual Report. DLF Pramerica has a shocking 53% of its claims pending.
A few words of caution
To avoid claim rejection later follow these ground rules:
– Provide correct details in the health declaration as hiding past history of diseases and essential health related information could lead to claim rejection.
– Stop agents from filling wrong details or, better still, fill the form yourself.
– Don’t opt for a single premium plan even though a discount is offered. Due to the uncertainties of life you may or may not need to pay the premium for the whole term. The premium doesn’t increase each year.
– Inform the nominee you have appointed about the term policy you have purchased.
– Don’t fall for misspelling offers of insurance agents that you will get back the entire amount you have invested, so the cost is zero. The money will be back upon death and the inflation cost as well as opportunity cost of money should be looked at from 15-20 years perspective.