Do you plan to buy a term plan through an agent? If yes, our advice is that you give it a second thought. Today many insurance companies like offer insurance products online. The policies sold online are often cheaper than those sold offline or via agents. The reduction in price is mainly due to the elimination of the hefty commission that companies shell out to their agents on their offline products. By going online, the company eliminates the middlemen and saves on the biggest cost in insurance - distribution cost or the cost of convincing the customer to buy the product.
Online vs offline purchase
When a buyer contacts an agent, the agent is more likely to push a product that earns him a higher commission. That is why it is said that insurance is sold, not bought. The agent sells what he wants to sell and the customer (knowingly or unknowingly) ends up with the wrong product. This happens mainly because the agent is interested in earning the highest commission, so he hides information that he does not want the customer to know.
By contrast, when you buy insurance online, you eliminate the conflict of interest vis-à-vis the distributor by digging up information yourself and deciding what you want to buy. It is difficult to buy a term plan, which provides the most inexpensive life cover, from an agent. Most agents do not sell term plans because of the lower ticket size of the premium, and their commission. They also try to dissuade customers. You are better off trying to buy a term cover online where nobody will try to dissuade you from buying this product. For example, Aegon Religare Life Insurance has a zero-commission term plan - i-term - which no agent will sell. The best way to purchase it is via the online mode.
Pros and cons
Purchasing insurance online is also convenient. You don't have to travel to an office or be kept on hold on the phone. It saves a lot of time and effort. The websites of most insurance companies allow you to compare quotes from all leading brands and find the best deal. Most importantly, you save on cost by getting a cheaper product.
However, online insurance purchase has its share of shortcomings, too. One, since no agent is answerable to you, you should read the policy document carefully and understand its implications fully. Two, although the use of technology makes the entire process easier and saves time, people who are wary of internet transactions may not like to use this mode. Three, people who live in far-flung areas and do not have internet access will not be able to use this channel.
How to buy it?
Decide on the insurer after doing thorough research and comparison of features of policies from different insurers. Always check the claim settlement ratio of the company. Also, check what price or the premium you will have to pay for the policy. Finally, before you choose an insurer, see if you fulfill the entire set of criteria for the issuance of the policy.
Once you have chosen the policy you will be required to provide personal details such as date of birth, address, sum assured, medical history, your present state of health, etc. Ensure that you provide exact and correct details. Thereafter, you will have to select the mode of payment. Most companies allow you to pay online, by cheque, or by demand draft. If you choose to pay by cheque, the company's representative comes to collect the cheque and documents from your home or office.
After you have provided the required details, the company's back-end process starts. It will verify the information you have provided in the form. The company does so by sending a representative to verify and collect the required documents. The representative also clarifies your doubts (if any). In case a health check-up is required, the representative fixes an appointment with the doctor for you. Thus, online purchase does not mean that human interaction is eliminated completely.
How safe is online purchase?
Do not worry, it is safe to buy insurance online. In fact, the chances of getting conned are more when you are dealing with an agent hellbent on selling a product that fetches him the highest commission. For its low cost, convenience and the way it eliminates conflict of interest, clearly online is the way to go when buying insurance.
Points to remember while purchasing insurance online
- Ensure that you make a comparison. One of the advantages of buying online is that you can at any time during the day compare the quotes provided by different insurance companies. You may do so by either going to companies' websites or to aggregator sites such as policybazaar.com.
- Read the policy documents and make sure that you know the policy's terms and conditions.
- Look for riders, which are add-on benefits that you may buy and add to your policy.
- Before taking a buy decision, consult your financial planner about the right product, if you have one.
- While making the payment, do it on your own. Do not pass on your log-in details or PAN details to others for making the purchase.
- Prefer purchasing on a recorded line.
- Do check all the important details over email, online chat system or phone before taking a decision.
This article first appeared in June 2010.