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Are Online Term Plans Trustworthy?

Last Updated: Jun 07, 2012 | 289 Views

This is one of the most common confusion one has while purchasing a Term Plan these days. There are so many term plans in the industry and the price differential is also high for similar benefits between online and offline plans.


Thus, it leads to a query I have often come across: Are Online Term Plans Trust-worthy? And if yes, how does Online Term Plans offer such low premium as compared to Traditional Offline Term Plans?
Let us understand it with an example: Ravi Arora, 30 years old wanted to take a Term Plan of Rs 50 lakhs for a Policy Term of 30 years. He considered the following:

Sr #

Name of the Plan

Premium

Online

1

Aegon Religare iTerm Plan

4,100

Yes

2

Aviva iLife Plan

4,635

Yes

3

HDFC Click 2 Protect Plan

6,742

Yes

4

Kotak e-Preferred Term

6,910

Yes

5

Aegon Religare Level Term Plan

13,652

 

6

Aviva Life Shield Plan

22,809

 

7

Kotak Preferred Term

8,287

 

8

LIC Jeevan Amulya Plan

16,800

 



Now, the question is which one should he choose and why? All plans guarantee a Term Coverage of Rs 50 lakhs for a period of 30 years and yet some plans are priced 5 times higher than others!

Now, the question is: How do these companies offer SUCH low premium for online Term Plans?

Some possible reasons are: 

Online Term Plans

Offline Term Plans

Low Distribution Cost

Higher Distribution Cost

Available in Selected Cities

Available at all locations

Expected Better Profile of Customers

Average Profile of Customers

Low Distribution Cost:

Online Term Plans are cheaper than Offline Term Plans mainly because of Low Distribution Cost (in the form of agent commissions, administrative costs, etc), which are not loaded in online term plans. Since Online Term Plans do not have agent interaction, there is no question of payout of agent commission. Thus, the online Term Plans are always priced at a cheaper rate than the offline ones.

 

Selected Cities Only:

Online Term Plans target a particular segment of people in selected cities only. It is not available in smaller cities. Many insurers offer these plans only for certain cities so that they narrow down the customer segment and avoid rural areas where mortality rates will be higher.

On the other hand, offline Term Plans are available in all locations.

 

Expected Better Profile of Customers:

The insurers expect that the people who would avail online term plans would be educated, internet savvy, have the basic financial awareness and have a healthy lifestyle. Since this product is available only through the internet, the insurers expect that the policyholders would be educated enough to understand the importance of declaring all relevant information about himself before purchasing the plan and not mis-leading the insurer in any way.  An online customer is thus presumed to be of better ‘quality’ as he or she has better access to health care and quality of life which is reflected in the vast difference in the mortality rates of online term plans. This assumption may or may not be true under all circumstances.


There are many assumptions on which the premiums for the online Term Plans are based. It is good for both the insurers and the customers, as long as these assumptions taken by the insurers turn out to be right. But if these assumptions go wrong in the long term, it could seriously impact the rights of the policy holders.

 

We would be able to understand whether the pricing of online term plans are justified or not only in the long term or when the life insurance giant LIC comes up with its own online term plan. Till then, it is only a waiting game.

 

Are Online Term Plans Trustworthy???

Yes Online Term Plans are definitely trustworthy. It is only a regular Term Plan which can be purchased online at a much cheaper rate.

Thus, as long as you:

  1. Declare everything about your past without holding back any relevant or irrelevant information
  2. Fill up the proposal form yourself and accurately
  3. Do the medicals properly and disclose all details about self and family
  4. Choose a Cover that would suffice your requirement

There should be nothing to worry about purchasing an ‘online’ Term Plan because like a mother considers all her children as equal, even an Insurer does not differentiate between the policies and considers online as well as offline Term Plans as equal.

Deepak Yohannan
Deepak Yohannan is the CEO of MyInsuranceClub. He enjoys writing on Personal Finance and contributes regularly on sites like Reuters & Moneycontrol. He is a strong proponent of online insurance and is often found pointlessly babbling about it!

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