Buying insurance? Look beyond the portals

It's easy to get lost in the muddle of insurance products available. Here's some low-down on which product to choose.



Buying insurance, whether through an agent or on the Web, is not as easy as effecting other financial transactions. With 24 life insurance companies and a host of products, it can be quite a task to compare products before zeroing in on the right one.

The portal route

Insurance portals such as Policybazaar.com, click2insure.in and Easyinsurance india.com facilitate the comparison of insurance products such as term and unit linked insurance plans across categories.

For investment products, they offer final fund values calculated at assumed growth rates of 6 per cent and 10 per cent as mandated by the Insurance Regulatory and Development Authority (IRDA). Although portals reduce the effort involved in visiting all the insurance company Web sites, results from portals should not be taken as final. After zeroing in on a few ULIPs , it is mandatory to visit the respective insurance company's site .

When we experimented with a live query, we found the following shortcomings with portals. One, though portals try and compare various policies, the products that are filtered out may not be the ones most suitable to you. Let's consider a situation where you want to invest Rs 50,000 per annum for next 15 years in a ULIP and want to know which insurance company offers a better yield with lower charges.

You can start by going to the menu in the portal and choosing between options such as child plan, investment or retirement plan. After comparing similar products offered by insurers, the portal may list four or five ‘best sellers.' Note that ‘best sellers' here may not be the products that offer the best returns or are best suited to you.

Two, the output contains expected final fund value, expected yield net of charges and tax adjusted yields, but does not distinguish between products which are available only online and those that only can be procured through agents. To address this problem, you may need to visit the respective Web sites of insurance companies.

For instance, we ran a check on policybazar.com with the investment criteria of saving Rs 50,000 per annum for a male aged 35 for tenure of 15 years.

Based on these inputs, the threw up names of four top sellers: Aegon Religare iMaximise, Aviva Freedom Life Advantage, Bajaj iGain III and India First Smart Save Plan from a search of 25 similar plans that inclusive of online and the products sold through the agents. Of the four, Aegon Religare and Bajaj are online products and the rest are sold only through the agents.

Three, there were differences between the yields as presented by the portal and that calculated by the insurance company. For instance, according to Aviva Life Insurance, the internal rate of return (IRR) for Aviva Freedom Life Advantage for the above input is 8.47 per cent with a projected fund value of Rs 14.54 lakh (calculated at a growth rate of 10 per cent as mandated by the IRDA). Whereas the portal projected an IRR of 7.98 per cent with projected fund value of Rs 14.64 lakh (higher fund value and lower IRR!).

Sum assured

A major concern with portals is that they base their comparisons on the annual premium alone and do not disclose the sum insured for the selected plans. Assume for instance in one product, that sum insured is at ten times the premium paid, whereas in another policy, the beneficiary paid a sum insured at death of policy holder, with the fund value or sum assured paid to the beneficiary.

The product with lower risk cover will give higher returns than the product with higher sum insured. However they are not strictly comparable. The difference arises because the risk charges deducted from the premia paid will vary according to the options inbuilt in the plan.

Classifications not in order

We ran a check in a portal for an investment period of 15 years, but the options it threw up included a pension plan, a Highest NAV Advantage Plan and a whole life policy. If you need to make an investment for your daughter's marriage then a pension plan or a whole life plan is definitely not the right option to go for.

Understanding cost structure

Investors may also need to visit the Web site of the insurance company to get the right picture on costs.

For instance, Aegon Religare being an online product the agent commission paid is nil, the entire premium without any premium allocation charge is invested after deduction of risk charge.

But the IRR of this product presented by the portal, is similar to the IRR of Aviva Freedom Life Advantage plan with premium allocation charge of six per cent in the first year. That looks impossible because the policy administration charge deducted in Aviva plan is 0.10 per cent of the premium per month against Rs 100 per month in the Aegon Religare product. Yet another reason to double check your facts before you make an insurance investment.

Queries can be sent to >insuranceplanning@thehindu.co.in

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