Wednesday, July 23, 2014
Why are online insurance plans cheaper? Debunking some myths
By Yateesh Srivastava Jul 22, 2014
What's in it for you
As an employee of a company that launched India’s first truly online insurance policy I often face questions from family, friends and customers regarding the pricing of online term plans. There seems to be some degree of suspicion that the low pricing of online term plans means that there is a catch somewhere or the veritable fly in the ointment. The biggest fear among people is that at crunch time — the instance of a claim — the insurer will find some way to not honour the claim.
There can be no greater fallacy than that. Every insurer understands that the fundamental responsibility of the business is to pay out every single genuine claim. No company can survive in the market for too long if the perception is that it does not pay out claims – and life insurance, please remember, is a long-term business and like every other long-term business, it is built on reputation and trust.
So if anyone tells you that the lower price of online term plans is on the basis of claims repudiation, please discount that completely. On the contrary, let me say quite definitively that in my experience the level of disclosures on the proposal form in the online space is very high and complete, leaving no room for claim repudiation.
So what really makes an online term plan so much cheaper than its offline counterpart? Is there a catch, if any? Let me put your mind as a customer to absolute rest. There is no catch in online term plans. The pricing is determined by three facts:
First, the cost of distribution is much lower on account of there being no commissions payable. This has an impact on the pricing.
Secondly, given that a major part of the process is online and paperless, there is a saving in the cost of policy processing, which is also passed on to the consumer.
Third, the profile of the online customer also leads to better mortality and morbidity assumptions, leading to a further rationalisation of the pricing.
As a result of these factors, the prices of online term plans are significantly lower than that of offline plans. There is no other catch or caveat that impacts the pricing. Online term plans are doing the yeoman service of building the protection category by providing adequate life cover at very affordable prices. This is providing financial security to thousands of Indians. As a customer, there is no downside in buying an online term plan. Just choose the adequate amount of insurance, answer a few simple questions and make the payment to start your journey on the road to protection. As long as you make all the disclosures fully, you can relax. Your family is now secure!
(Yateesh Srivastava is the chief operating officer of AEGON Religare Life Insurance. Every Wednesday Financial Chronicle invites an industry leader to explain products, processes and issues of investor interest)