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Online Term Plan-Why premiums are low?

What is a Term policy?

A Life insurance policy, in which the only benefit is payable on the death of the policy holder, is called Term insurance Policy. Let us understand this with an example.

If Mr. X aged 35 is taking a Term insurance policy from LIC for a 25 year term, he has to pay an annual premium of around 19,850 for a 50 lakhs policy. In case of his death anytime during the next 25 years, his nominee will get the 50 lakhs as the insurance claim. But if he survives to age 60, no payment will be received from the insurance company. This is how, a term policy work.

The term policy is an excellent way of covering life risk for high values at an affordable rate. In India, these policies are not popular. Some private life insurance companies are charging only 50% of what LIC charges. Competition has helped in reducing the premium rates.

Online Term Plan

What is an Online Term Plan?

This is a modified version of Term policies. This allows you to buy a term policy online, without approaching an agent.

How can I take an online term plan?

You have to log in to the website of the company to buy an online term plan. You can calculate the premium according to your age, sum assured and term of the policy. You can make the payment of the first premium online using credit card/debit card/internet banking. After this, you have to fill in your personal details. This includes questions on your health conditions, habits, treatment record, family history of any diseases, your existing policies etc. You have to answer all these questions correctly. You have to take a print out of the details filled in.

Once, this is done the insurance company representative will contact you and arrange for the medical examination depending on your age and sum insured. You have to submit the print out of the personal details, age proof, income proof etc. to the company representative.

On receipt of first premium, proposal form, medical reports and other supporting documents, the company will issue the policy as per the underwriting rules of the company.  If the health conditions are not normal, the company will load the premium and you have to pay an extra premium.

 Mr. X aged 35, can buy an online term policy of 50 Lakhs by paying around 5200 as annual premium. Please note that this is only 26% of what LIC charges for a Term Policy.

Why online Term plans are cheap?

The profile of policy holders opting for these policies is different from the general public. This will ensure lower death rate among these clients and so insurance companies can offer lower rates. There are many reasons for this low premium in online term plans. The main reasons are given below:

 1.       Online Term plans  are offered only in select cities

Online Term Plans are offered only in select cities. These cities are having excellent medical facilities. The customers can avail the high class medical facilities available there, which will increase their longevity. Cities offer better living conditions compared to underdeveloped areas. This quality of living will also increase the longevity.

2.       Net savvy customers only will opt for online term plans

Since online term plans are purchased only by net savy customers, there is an automatic selection happening here. Normally, these customers are educated and belong to the white collar category. This group is health conscious and has the capacity to afford treatment in good hospitals. This can increase longevity.

3.       There is low management expenses in case of online term plans

Since there is no agent involved in the sale of an online term plan, the insurance company saves on commission expenses. If the policy is sold through an agent, in addition to the commission, there are other administrative expenses like sales incentives, manager’s salary etc. which also will add to the cost of new business. In Online term plans, all these expenses are saved.

4.       Strict medical underwriting and loading of premium

Since only educated prospects are applying for online policies, there will be more disclosures regarding the actual health condition at the time of taking the policy. Based on the medical reports and such disclosures the company may load the premium, depending on the health condition of the prospect. In some cases, you can expect the loading to be equal or more than the normal premium, depending of the extra risk of the prospect, as estimated by the underwriters of the insurance company.

Though the premium quoted in the website may appear very low, in most cases, there are loading of premium depending of the health condition. The premium quoted in the website is that for a healthy person with no adverse medical history.

What you should do while taking an online term plan?

It is important that you disclose all personal information correctly at the time of taking a policy. If there is any non disclosure, that can lead to rejection of claims in the future. You have to give correct answers to all the questions in the online proposal form. You are expected to disclose all your existing policy details also.

There should be a proper nomination in the policy and inform the nominee regarding this. The contact details of the insurance company should be known to the nominee, to avoid confusion, in case of a claim at a later date.

Have you insured adequately? If not do it now through an online Term plan. It is really worth.

 

 

12 Comments

  • vijay Posted November 26, 2012 3:42 pm

    very good1

  • Lalit Posted January 12, 2013 7:57 pm

    Very nicely written. Easy to understand. I have one query: If I am fully fit, no adverse thing comes up in medical report, declares everything correctly in form, still, will my premium be loaded and will it be different the what is shown in insurance company website including s. tax.? Kindly reply. Thanks

    • Melvin Joseph Posted January 13, 2013 11:47 am

      No, If everything is perfect and no adverse findings in medical/occupational/family history, the premium will be the same as mentioned in the website of the company.

  • Tirtha Sahoo Posted March 24, 2013 5:19 pm

    Can 3 different term insurance policy from different house be taken for single life to be insured?

    • Melvin Joseph Posted March 30, 2013 9:48 am

      Yes, you can have any number of policies from any number of companies, if your annual income and health conditions support the insurance cover. But when you are applying for new policies, please mention details of all your existing policies.

      • Nitesh Kumar Posted April 9, 2013 12:56 pm

        Do I need to update the existing policy profile that I have taken another policy?

        • Melvin Joseph Posted April 10, 2013 5:36 pm

          No need to update existing policy profile. The only requirement is to inform the company when you are buying new policy.

  • J B Posted March 25, 2013 7:11 pm

    very nicely drafted contents….very easy to understand all aspect of term plans….anybody can buy online very easily…….

  • Mahesh Posted May 31, 2013 7:20 am

    But the claim rejection rate of the private companies are very high. I have also heard that they negotiate with the claimants once the death claim happens. Is that true.

    Again these companies have operated in India for only a few years now and how can they come upon a different mortality table than that of LIC of India. Also are all the companies not to follow the same mortality table that of LIC of India, now.

    • Melvin Joseph Posted June 3, 2013 6:16 pm

      Most companies are still using very old mortality table which is not relevant now. Death rates have come down drastically in the recent past. Together with savings in agent related expenses, new companies can offer better rates to the selected low risk category.
      Regarding claim rejection, you need not worry. If you are disclosing the medical/health/habits correctly in the proposal, companies cannot reject any genuine claims. Otherwise, even the best company can reject the claims.

  • s.sriniwas rao Posted July 13, 2013 9:33 pm

    sir my d.o.b is 20/02/65 i want to take online cheapest term plan for s a rs 10,15 lakh for the term 12 yrs or max.offered term which insu.co.’s prm is low pls gv details
    thanks

    • Melvin Joseph Posted July 26, 2013 4:00 pm

      You can try with companies like Aegon Religare, Aviva or HDFC Life.

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