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Discarding Existing Term Plans for Cheaper Online Alternatives
Discarding Existing Term Plans for Cheaper Online Alternatives
Sep 08, 2014 | 1969 VIEWS
Multiplexes, Mall Shopping, Low Cost Airlines, Smart Phones, Tablets, 3G connection, Super-Market, Pizza, Café Frappe, etc. have now become a part of our daily lives. India has started to eat, wear and live differently. Investment hasn’t taken a back step either. In fact, today’s youth are investing quite prudently through SIP etc. although their focus is still on Short Term Returns rather than Long Term Capital Gains. The only difference is with Term Plans. Term Plans have become quite popular even with the underlying fact that they are ONLY Protection Plans with no returns.
 
With the introduction of new Online Term Plan which is easily available and cheap, there is a growing trend of purchasing Term Plans both with the young and not-so-young!
 
Term insurance plans have opened the doors of insurance for many who earlier couldn’t afford an insurance policy. Term insurance allows you to purchase and maintain an insurance policy at a nominal rate. There is however no investment quotient in such a plan and it only works to provide a sum assured to your beneficiary if you happen to die. Term plans are therefore much cheaper than traditional plans and you can even get a cover of Rs.85 lacs by paying a premium amount of just Rs. 4,550. However, now with the introduction of even cheaper online term plans, a lot of people are discarding their offline term plans for the online alternatives. But is this a good practice to follow? Read on to know more.
 
What makes an online term plan cheaper?
There are a number of reasons that make an online term plan cheaper than a regular offline term plan.
Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance Co., states that there are primarily three reasons that make these plans less expensive:
  • First is the distribution cost; we don’t have to pay the agent anymore
  • Second is the operational cost such as storage of forms and data entry
  • The third is the profile of online customers. Typically, online customers have a better profile and hence the mortality costs of such customers are lower.
 
When is it a good time to shift?
Industry experts advise you to make the switch early. In other words, you will gain more if you switch to an online plan at a younger age. Since the health risks are lower for a young person, your premium rates come down drastically when you opt for an online term plan. For example, the premium charged by HDFC Life for the Term Assurance plan (offline) is Rs.12,326 for a sum of 50 lacs. For Click2Protect, an online term plan from the same insurer for the same value, the premium is Rs. 8,400. See the difference?
 
However, if you are older, say 45 years and above, you may want to stick to your offline plan, as taking a new policy at this age, even if it is online, may prove to be more expensive than the existing plan. So age of the policyholder plays a big role in determining an online plan’s effectiveness and cost-saving element.
 
Top 5 Online Term Plans:
Let us check the premium for a 30 year old Non-Smoker for Rs 50 lacs for tenure of 30 years.
 
Online and Offline Term Plans from the same company has quite a difference in premium for the same amount of coverage and similar tenure. So, premium is quite a huge amount of consideration in many cases whereas not so much in some.

Are there any drawbacks?

Honestly speaking, there are very few drawbacks of an online term plan. These plans are convenient and extremely cost-effective. Some drawbacks of Online Term Plans would be:
 
  • The tenure of Online Term Plans are usually defined as 30 years or till 60 years. However, the life insured may want coverage till 65 or 70 years of age till all his liabilities remain. Offline Term Plans have far more flexibility in case of Policy Tenure is concerned.
  • Since there is no agent intervention in an online Term Plan, there would be no agent to assist in case of a claim. Now, the role of an agent is very strong as far as claim processing is concerned because the immediate family member is way too disturbed emotionally to think about the financials. That is when the agent plays a major role.
Moreover, your nominee must also be savvy enough to file the claim on his/her own without much assistance. Thus, if your nominee is very conversant with financial matters, then online is a good option but if she is not, then you must opt for off term plan such that even if something were to happen to you before time, then the agent can help your family settle the financial matters at least.
 
  1. Riders- there are some plans like Aegon Religare iTerm Plan which offers additional riders for online Term Plans but most plans don’t. Hence, if you need Accidental Death Benefit, Critical Illness Benefit, etc. at a low cost, i.e. as a rider then online Term Plans may not be able to suffice your purpose.
  2. If you are a smoker, maybe occasional or seldom, you must disclose the same while opting for a Term Plan. If you fail to do so by any chance, then you can be rest assured, that your claim would be repudiated. So, should one shift?
 
Understanding all the pros and cons, if you feel that you are paying way too much for your Existing Offline Term Plan and you wish to shift to an online one, you can do so. But remember some of the points while shifting:
  1. Since your age is higher now than when you had taken the plan, chances of your premium increase exists
  2. If you have been contracted of any illness/disease within the last few years which was not disclosed in the last plan, but you need to disclose the same now, chance of a policy rate up, exclusion, premium rise as a loading, etc. remains.
  3. You remain uncovered for the tenure of shift. Thus, while the last policy lapses and the new policy is not issued, you are exposed to high risk.
  4. While opting for a new plan, your “Early Death Claim” period of 2 years from the date of policy inception begins all over again such that if you happen to die within a period of 2 years from the policy inception, then the claim would be investigated before processing the same.
  
Conclusion

The practice of discarding existing term plans for online term plans is common nowadays and people have good reason to do so. If you too are considering a switch, keep the basic points of age and policy period in mind and make a switch as early as possible. It will definitely prove to be a profitable move.

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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