Mr. Khanna aged 30 years from New Delhi wanted to buy a term plan for the protection of financial future of his family, so he started evaluating various options. He compared quite a few term plans offered by different insurers, and made a summary table (given below) of premiums charged by different insurers for Rs. 50 lakhs sum assured for 20 years.

S.No.	Insurance Company	Policy Name	Mode	Premium (Rs.)
1	Aviva Life	i-Life	Online	4,436
2	Aegon Religare	iTerm	Online	5,200
3	Met Life	Met Protect	Online	5,294
4	Kotak Life	e-Preferred	Online	5,487
5	ICICI Prudential Life	i-Protect	Online	5,791
6	Birla Sun Life	Protector Plus	Offline	7,721
7	SBI Life	Smart Shield	Offline	7,956
8	Max New York Life	Platinum Protect	Offline	8,050
9	HDFC Life	Term Assurance	Offline	10,556
10	LIC	Amulya Jeevan	Offline	12,850

Source: Respective company website

But the above table, rather than meeting his needs, confused him even more as life insurance giant LIC offered a Term Plan named LIC-Amulya Jeevan at yearly premium of Rs. 12,850 while a relatively new entrants Aviva or Aegon Religare offered a same featured Term Plan for Rs. 4,436 and Rs. 5,200 respectively.

He started wondering how can company like Aviva started in 2002 and Aegon Religare started in 2008 offer term plans for such a cheap price when biggest player in the life insurance industry (LIC) is charging 2-3 times of their premium.

The problem faced by Mr. Khanna has become very common these days as most of the people get confused seeing such a difference in the lowest and the highest premium term plans.

Why is there so much difference in premiums charged by different insurers?

The difference in premium is mainly because of the following reasons.

• Increasing competition between various life insurers to tap the untapped market
• Absence of intermediary between insurer and customer i.e. Agents commission is not included in online term plans
• Operating and various other miscellaneous expenses of life insurers are saved, the benefit of which is passed on to customers
• Past Claim experience of the life insurer
• Assumptions on investment return for different insurers are different
• Online Term Plans target a certain customer segment by offering it only in selected cities

Is such a low premium charged by insurers justified?

Every life insurer has their own way of determining the premium to be charged based on some assumptions. These low insurance premiums are also helping insurers to penetrate their business into the untapped Indian market. It’s good for 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.

If these assumptions go wrong and insurers start facing too many death claims from the policy then the insurers will start making losses. At that time Insurers will have 2 options: Either promoters should infuse more capital to settle the claims or start rejecting claims by giving some unacceptable reason.

Pricing of online term plans is justified or not, we will come to know about it only in the long term or when the life insurance giant LIC will come up with its own online term plan.

Should you go for Online Term plans?

Online Term plans in its true sense are not at all a bad product. It provides you the convenience to buy the life insurance at the click of the button, it also reduces premium amount for the policy and saves you from being cheated by the insurance agent. But before buying an online term plan just make sure of below mentioned points:

1. You should disclose all the facts like your health history, family health history, smoking habits, occupational details and any other facts which could lead to rejection of the claim in the future.
2. Make sure you fill your complete details yourself while taking the policy
3. Don’t forget to read the terms and conditions of the policy before buying any policy
4. Buy it from the insurer who has been in this business in Indian market for a number of years
5. Buy it from the insurer who has good claim settlement track record

Keeping these points in mind will make sure that whatever premium you are paying towards your life insurance policy is not getting wasted because of uncertainty claim settlement in the future.

Now you can easily go and buy life insurance, or rather you can buy peace of mind….

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Comments
sarvesh.sood@gmail.com Aug 30, 2011 Hi, Can you please share the latest claim settlement track record?
subramanyauh@gmail.com Aug 30, 2011 As of now all Insurance Companies except LIC are  under loss. We are not sure whether they are going to settle the claims in future. Though the premium is more, be sure you get your claims in LIC as they are guaranteed by Govt of India as well by the past performance and track record. All the private Insurance Companies give lame excuses when it comes to claims.  Ask IRDA whether it guarantees claims in case of default by private insurers. If one answers all the points raised in  your article, the only firm left is the giant LIC.
docgaurav@gmail.com Aug 30, 2011 "Buy it from the insurer who has good claim settlement track record" Well how can a lay person easily find which company has a good settlement record for life insurance?
krsmanyam_1952@yahoo.co.in Aug 30, 2011 The article is very informative and hence useful in choosing a right policy.
ankit.mathur82@yahoo.com Aug 30, 2011 Can the team at personalfn.com share with us latest claim settlement figures as available on irda website or, share with us the link for same? I think it's one of the most important factor one should consider before finalizing the term plan he wants to invest into.

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