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Is it better to buy insurance online? or should one buy from the agents? Are online plans cheaper than buying through agents? lets look at the facts!

Harsh Roongta

16 Sep 2010

I recently spoke to a cousin of mine who told me that he had lost out by following my advice. When I asked him how, he told me he had bought a term insurance policy for Rs. 1 crore for a period of 30 years after talking to me about a year ago. At that time he had paid an annual premium of around Rs. 21,000 for taking this policy. He recently checked out www.apnapaisa.com and a term insurance policy for the same amount was available now for an annual premium of around Rs. 10,500/- inspite of the fact that he was now a year older (he is now 28 years old) . In fact he had ended up paying 50% more than he should have paid.

My cousin did a calculation of the amount that he had lost by buying the policy one year early. The extra premium of around Rs. 10,500/- every year for the next 30 years, if invested at 8% p.a. would have given him a corpus of around Rs. 13 lacs at the end of 30 years.


Clearly the life insurance companies have got in to a war for 'term insurance, which had hitherto been neglected. A lot of reductions in premiums are due to the use of online medium as also from passing on the benefits of more efficient methods of payment such as ECS. Some of these products can be bought exclusively online only and cannot be sourced through agents or any other medium. First to launch this was Aegon Religare's iTerm product. This was one of the cheapest plans at the given point of time. This plan was far cheaper compared to a normal plan because of lower distribution costs. ICICI iprotect is the latest entrant in this field, with Kotak Preferred term (which is also available through agents) vying for the honor of being the cheapest in most of the criteria.

(See table for details on the 3 products and comparative premiums)


Table 1: Term insurance products available for non-tobacco users


Features

  • Aegon-iterm

ICICI-iProtect

Kotak Preferred Term*

Minimum sum assured

10 lacs

10 lacs

25 lacs

Maximum sum assured

10 crores

10 crores

Not stated

Minimum Policy term

5 years

10 years

5 years

Maximum Policy term

25 years

30 years

30 years

Minimum age at entry

18 years

20 years

18 years

Maximum age at entry

60 years

65 years

65 years

Maximum age at maturity

65 years

75 years

70 years

Kotak Preferred term is also available offline through agents


Below mentioned tables show premiums for various ages i.e. 30years, 35years, 40 years and 45 years for sum assured of Rs. 50 lacs and Rs. 1 crore. The term of the policy is 60 years minus the age.


Sr. No.

Name of the company

30 years

35 years

40 years

45 years



50 lacs

1 crore

50 lacs

1 crore

50 lacs

1 crore

50 lacs

1 crore

1

ICICI Pru life iProtect

6,783

12,023

8,273

14,670

10,644

18,861

14,339

25,590

2

Kotak Life Preferred Term Plan

8,135

15,304

9,899

18,889

12,657

24,294

16,380

31,711

3

Aegon Religare iTerm Plan

NA

NA

8,272

15,994

10,975

21,288

14,449

28,237



The health insurance companies have also started similar plans. Recently Apollo Munich has launched a health insurance product called Optima Cash Plan that has both the options of buying the plan online or through agents. In case the policy is bought online, then the proposer gets a discount of 5% on the premium amount. Similarly in case of HDFC Standard life Term insurance plans, a discount of 10% on premium is offered in case one chooses the ECS Mode and not pay premium through cheque.


In fact the premium war for term insurance is set to intensify as a committee has reportedly prepared a new mortality table based on 2008-10 data. It has considered the data provided by both Life insurance Corporation (LIC) and the private sector insurers. As per the data provided by them mortality rates (the number of insured people who die every year at a particular age) have come down by 25 to 30% for the higher age brackets. Once the insurance companies start using this data, the term insurance premium is likely to come down further by around 15 to 20%.


Meanwhile what about my cousin? Well he did not really loose money. After all he enjoyed a life cover for the year at the then cheapest rates. Off course as his health status has remained the same he can even now take the new policy at a cheaper rate and after receiving confirmation of getting the new policy he can let the old policy lapse. In fact as rates are slated to drop further this is likely to happen year after year unless the Life insurance industry starts offering the newer cheaper rates to its existing term insurance customers who are in good health at the time of renewal.


Here's hoping that the reduction on risk premiums spreads to critical illness plans as well which have remained as expensive and difficult to get as they were earlier.