‘Rs 1 crore life cover for Rs 17/day’ read an ad which popped up when I logged on to a personal finance Web site. It looks like a good deal, but up popped another ad on a different Web site, this time offering the same cover for Rs 16 a day. Since a term cover is anyway plain vanilla, is hunting for the cheapest policy all that you should look for? In that case, online policies make the most sense, since they’re certainly much cheaper than offline ones. But it isn’t as simple as it sounds. Here’s why.

The Cheapest plan Let’s start with an example. HDFC Life’s online plan e-protect charges a premium of Rs 6,742 for a sum assured of Rs 50 lakh for a 30-year-old male who is a non-smoker. If you take the same cover offline, the insurer will charge you Rs 13,400, almost double the online price.

That’s a huge difference, but is online plan identical to the offline one? Yes. Policies in both the online and offline mediums have the same features, with no added risks in the online plan. Yashish Dahiya, CEO and Co-Founder, Policybazaar.com, says, “Online products are protected by the same rights as offline products. The products are processed in the same manner and they are approved by the same regulatory authority and hence are completely safe. The major difference is only about the channel of distribution and thus the associated costs.”

Online policies too require medical tests, but some insurers may waive it by designing an exhaustive questionnaire that traces the medical history of the individual. But to avoid the risk of claim rejection later, make honest declarations about your health.

Within online plans too, there is a wide difference in premiums across insurers. For a Rs 50 lakh term policy for a 30-year-old male, the online term premium goes up from Rs 4,600 to Rs 8,700 for a year. This difference is due to many reasons.

One is the difference in mortality assumptions based on people applying for policy.

The other reason is that there is no agent commission in online policies and the insurer passes on this savings to the customer. Lastly, the increased competition is also a reason, adds Dahiya.

Claim settlement But before buying the cheapest policy on offer, take a look at the insurer’s claim settlement record. Insurers who offer rock-bottom prices can be stingy in settling claims. In fact, the settlement record of an insurer is more important than even the cost of the policy. Ultimately, the objective of a life insurance cover is to help the policyholder’s family in his absence. But, when this itself is in question, there is no use taking a term insurance.

The latest available data from IRDA (for 2011-12) shows that LIC settled 97.4 per cent of its claims in FY12, a record no private insurer beats. The average claim settlement ratio among the private players for that year was 89.3 per cent.

Some private insurers who have a good record on settlement are ICICI Prudential, HDFC Life, Bharti AXA and Bajaj Allianz (see table).

Exclusions So, on what grounds can an insurer reject a claim? Generally, claims on a life policy could be rejected under ‘early claims’ if it falls in the initial three years of the policy. This is the reason why many private players who have entered the industry in the last 5-10 years have a poor claim settlement record.

This apart, many insurers exclude death caused by injuries due to riots and terrorist attacks, accidental death say due to car racing or drunken driving. So, look for an insurer who has a smaller list of exclusions, available in the product brochure and policy wordings.

Also, you need to find out the insurer’s customer servicing record, says Suresh Sadagopan, Founder of Ladder 7 Financial Advisories, a leading financial planning firm in Mumbai “To know this, walk into the branch near you and talk to the customer service person. You may even surf the net about the insurer and see his ratings by customers. Some Web sites such as mouthshut.com can help here.”

rajalakshmi.sivam@thehindu.co.in

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