As insurance companies are tweaking their product strategies, customers should opt for online term plans which are 20 to 30% cheaper than offline ones.
Since the outbreak of Covid-19, interest in life insurance, especially term plans for pure protection, has grown. Data from Insurance Regulatory and Development Authority of India show that protection sales have risen in Q1FY21 as the sum assured-to-premium ratio has increased to 56.3 as compared with 32.4 in FY20. Experts say policyholders are increasing their life cover and pure term plans, especially the online ones, are gaining traction.
However, sales of unit-linked insurance plans (Ulips) have dropped as consumer confidence in the stock market has been badly hit and customers are looking for stability and assured returns. Experts say that savvy customers who believe in buying at the bottom will start new Ulips and existing customers should stay put and not try to redeem prematurely as the SIP rupee cost averaging is going to help them.
Insurance companies have also been tweaking their product strategies and moving to digital to push sales. In fact, a report by PwC underlines that the heightened interest in insurance will be difficult to convert to actual sales, unless the industry moves to online fulfilment in a big way, with analytics-led customer segmentation and selective medical underwriting.
Buy online term plans
An individual should opt for a pure term insurance plan to cover the life risk and protect the family. Term plans provide financial protection to one’s family as the benefit amount is paid out to the nominee in case of death of the person insured. Most people still prefer buying term insurance from agents although online policies are 20 to 30% cheaper. As the first-year commission paid to agents is high, buying a policy online saves the agent’s commission and documentation costs of the insurance company.
You can purchase an online term plan directly from the company’s website. Insurers offer customised term insurance plans according to the policyholder’s needs. Ideally, the cover or the sum insured should be 10 times of one’s annual income and should be reviewed periodically depending on the age and the liabilities.
Before you finalise on the term plan, confirm from the company whether you would need a medical test. Most companies insist on a medical test after the age of 45 years. Insurance companies bear the costs of the medical tests which have to be done at approved hospitals and the report is generally shared with the applicant. and Do fill in the details in the form accurately. Any wrong information will lead to cancellation of the policy and even rejection of claims.
Look at costs before buying Ulips
Unit-linked insurance plans which are linked with stocks come with a thin crust of life insurance. These products have a lock-in period of five years and policyholders opt for either large-, mid- or small-cap or even debt funds depending on their risk appetite. As Ulips are market-linked, they can be volatile in the short-term and the returns are not guaranteed.
You must know the cost structure of Ulips before investing. There are six types of charges—premium allocation, policy administration, mortality and fund management, switching, and discontinuation of premium. The premium allocation charge in Ulips is deducted from the premium paid by the policyholder for allocating the units. It is charged by the insurers to recover the costs incurred in processing the policy such as underwriting, medical examinations and distributor fees.
The mortality charge will depend on the age of the policyholder and health conditions and is calculated per thousand of sum at risk. Mortality rate is higher for Ulips as compared with term plans. The fund management charge is deducted towards managing the fund and is levied as a percentage of the value of assets. It is deducted by the insurer before arriving at the net asset value.