It’s rightly said “It’s never too late to start a new beginning”. At
last LIC, one of the largest players in life insurance business, launches online
term plan which will not only increase awareness but also increase the
competition in the market. LIC move also will force other players, who still
have not launched it, to launch online term plan soon. Even premium of LIC
online term plans is higher compared to peers it will help people to understand
the need of life insurance and also reveal the facts that how the investment
products are bundled. This will help them to separate insurance and investment
need in future.
Term insurance is the oldest form of life insurance and is the least
expensive plan to purchase the death benefit. Under term insurance there is no
maturity value payable at the end of policy term but only death claim i.e. full
sum assured is paid to the nominee if person insured dies during the term of
the policy. Term insurance is the simplest type of life insurance and easiest
to understand. You do not have to calculate the charges and returns in this
plan, as you know from the day one that premium paid by you is expenditure. The
idea of not getting anything back at the end is still misunderstood by the
people. You should be aware that the mortality charge (premium for death claim)
is also loaded in the investment products, so there is nothing free as wrongly told
by many agents.
Few years back private players launched online term plan which has got
huge response from the people particularly in big cities. Now with LIC coming
in the race the penetration is likely to increase and will go down to smaller
cities as well. The major difference between regular term plans offered through
agency channel and online plan is that online term plans are available at 40%
discount premium compared to regular offline term plans. Why this is so because
premium of regular offline term plan include commission payable to agent, cost
of marketing and office expenses. Whereas all these expenses are saved in
online term plan, making them cheaper from cost point of view as plan is
directly bought from company through its web site.
The costs are lower also because mortality experience in these plans is
also likely to be good as the plan is targeted to the well-educated people.
Mostly the targeted class is well informed and provides true and correct
details of their family and health history. This segment also has access to
good health facilities due to affordability factor. All these facts leads to
conclusion that claim ratio will also be reasonable & therefore online term
plans are available at very competitive rate.
There is no doubt that term plan is the best option to secure your
family in case you die early during your earning phase. But before opting for
online term plan, you must note following points which is likely to help
finalizing the deal.
1) You must calculate the exact life insurance need before finalizing the
sum assured. The need based approach is always advisable but by thumb rule you
should buy life cover equal to minimum 12 times of your annual income.
2) Only earning members of the family requires life insurance cover who
has dependent. House wives and children’s do not require life insurance as
there is no economic loss to the family.
3) It is advisable to take term plan till you reach your retirement.
Once you stop earning, there is no need of life insurance cover.
4) These online term plans are offered in selected cities at present and
you have to check before applying.
5) Insurance contract works on the
principle of utmost good faith. Therefore it is important to disclose all the
relevant details correctly while filling application form online including
existing insurance plans and health history if any.
6) The effective cost becomes
major criteria while finalising online term plan as there is no maturity value
in term plans. Since you buy term insurance plan
for peace of mind, you can consider buying from brand you trust even the plans
is slightly expensive compared to the cheapest plan available in the market.
7) You should also find out the claim ratios of the
insurance cos. before buying term plan. According
to us claim ratio is less important for buying insurance plan. Once you
disclose all the facts correctly no company can reject your claim. Still if you
are terribly worried about the claim ratio of particular company than you can
consider shifting to brand you trust or that has lower death claim rejection
ratio.
8) You should also read carefully the exclusions mentioned in the policy
document. Normally suicide within one year period is not covered.
9) You make sure that your spouse and adult children’s also know about
your insurance plans and where the documents are kept.
10) Don’t opt for riders like waiver of premium in case of total
permanent disability or diagnosing critical illness covered. This will only
stop your premium but you require huge sum in case of such disability. Buy
separate benefit plans which are income replacement plans and pays the lump sum
in case of disability either by accident or any critical illness.
Online term plans will help people separating insurance and investment which
always benefits investors and it’s a proven fact. Buy online term plan and
invest the surplus in other avenues depending on your time horizon and risk
profile. PPF is a good for debt investment and for equity investment you must
look at equity or balanced funds of mutual fund which has proven track record.
