Online term plans cost less, but first compare claim rejection ratio

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SummaryLife insurance companies are providing child plans that are investment-cum-insurance products.

How should I evaluate a child plan and how beneficial is it in the long run as compared to Public Provident Fund?

Arvind Mahajan

Life insurance companies are providing child plans that are investment-cum-insurance products. These plans are available both in traditional and linked category. Traditional plans can give returns of not more than 6-7%. Similarly, linked child plans carry market risk that can give better returns only when the plans are long-term. The child plans have an advantage in premium waiver rider. If the insured person dies during the policy term, premium payment is waived for the remaining period.

Public provident fund is an EEE-category investment and it matures after 15 years. Currently, it provides return of 8.8%, which is better than the traditional child plans.

I have a term policy from a private insurer for the past 5 years. I want to discontinue it and take a similar policy from LIC. What will I lose in the process?

Umaid Singh

Term insurances are cheaper at young age. As age increases, the premium gets higher. LIC’s term plans are costlier vis-a-vis those from some private insurers. So, you may have to pay a higher premium by discontinuing the old policy and taking a fresh one from LIC. It is advisable to go for online term plans after comparing the premium and claim rejection ratio. But one has to ensure that the old policy is cancelled only after the fresh is taken.

I have seen some data where the claims ratio for private companies for motor insurance is much less than government insurers. Does it mean that they reject claims the most?

Akash Patel

During 2010-11, the claim incurred ratio for motor insurance is 93.70% for private insurers and 111.10% for government insurers. So, government insurers have better record. The motor insurance policy basically consists of two parts: A third-party-liability and own-damage covers. The third party premiums and claims of all the insurers were managed by a pool and the premium and claims were distributed in an agreed proportion. The companies had freedom on own-damage underwriting and claims. Now, Irda has brought some changes in which even third-party liability will be managed by individual companies. So, this will prompt companies to emphasise on better management of risk.

What is personal accident cover insurance and how much do I have to pay for a cover of say R5 lakh (I am 35 years old)?

Shankar Prasad

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