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Life Insurance - Five things to know about online term plans

19 Aug 2013

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Though they have become popular in the past two years, many customers have misconceptions about these insurance plans...

1) Low premiums don’t make them unreliable

The low premium rates of online term plans make many people apprehensive. A 30-year-old can buy a Rs 1 crore cover for as low as Rs 7,000-8,000 a year. However, sceptics think there is a catch in the policy terms and insurance claims might not be honoured. The premium of an online term plan is low because of two basic factors. One, there is no intermediary, so the agent’s commission is passed on to the customer. More importantly, the online buyer is perceived as a low-risk customer by insurers. He is educated, earns reasonably well, is concerned about protection and is likely to have health insurance as well. In case of a medical emergency, he may be able to quickly reach a hospital and access specialised medical treatment. All these factors combine to lower the risk and, therefore, reduce the premium.

2) No difference in client servicing

The online customer receives the same quality of service from the insurance company as any other client. The difference is only in the channel through which the policy has been bought. Agents try and paint a different picture because they lose business when a customer buys directly from the company. When a claim is processed, there is no differentiation between a policy bought online and one purchased through an agent. Besides, all insurance companies have to comply with the rules laid down by the insurance regulator, Irda. If a company is found lacking in service or tries to wriggle out of a commitment, the customer can file a complaint with Irda.

3) Premium is indicative and can change

The online quote is based on the assumption that you carry the normal risk in terms of health, family’s medical history and occupation. When you submit your details online and pay the premium, the cover starts immediately, but is subject to your medical tests and actuarial screening. If the tests show that you are suffering from a medical condition, have a family history of an ailment, or are exposed to a specific risk at work, the premium quoted is likely to rise. If the customer declines to pay the higher premium, his money will be refunded after deducting the expenses incurred on the medical check-up.

4) Remember to renew policy, don’t let it lapse

If purchasing an online term plan is one of the smartest money moves, the dumbest is to let it lapse. With no agent running after you for the renewal premium, there is a good chance that the customer will forget to renew his insurance. Once the policy lapses, you will have to buy afresh at a much higher premium. Companies offer a grace period of 15-30 days for late payment of premium, but don’t bank on it. Give an ECS mandate to your bank, so that the premium automatically gets paid when it is due. It’s a good idea to set an alert in your cell phone or computer.

5) Don’t hide facts in the application

If you smoke or chew gutka, your premium will be roughly 25-30% higher than that of a non-smoker, but don’t try to hide the fact in your application. Not revealing crucial facts relating to your health, social habits and existing policies can jeopardise your insurance cover. If the insurer finds out that a policyholder concealed information that affected the risk to his life, the claim will be rejected. Most companies have medico-legal experts, who scan the claim documents for any attempt to mislead. Every year, about 2% of the claims received by life insurance firms end up in the trash can. Your insurance policy is the bulwark of your financial plan. Don’t let it be rejected just to save a few hundred rupees as premium.

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Life Insurance - Five things to know about online term plans

19 Aug 2013

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