Ask Mint Money | Online term plans are cheaper as there are no distributor fees

Published in Mint on, Apr 24 2012, Written by Kapil Mehta

I have a term insurance policy. When I compared the premiums charged for online term insurance with that charged by private companies, I realized that the amount that I am paying is very high and I can get the same cover at a lower premium. Why is there a differences in the premiums? Do private companies have a lower settlement ratio? Should I move to cheaper plans?
-Sandip Khetle

You are asking all the right questions. Online term plans are cheaper by about 20-30%, primarily because the insurer does not pay distributor commissions on these products. Private companies have a lower settlement ratio than government-owned insurers. However, I do not believe that this is driving the low cost of online term plans.
In you are Internet-savvy, then move to a cheaper online plan. Make sure you purchase your new policy and have it in your hand before lapsing your existing plan. Since you will not have an advisor to help you fill out the proposal form, make sure that all details are filled in completely and accurately. Incomplete or inaccurate information is a major reason for claim repudiation.
I am 26 years old and I want to buy a life insurance policy. My annual income is Rs 7 lakh. My parents and my brother (15 years) are dependent on me. I will get married in October this year.

Should I buy a term plan, endowment plan or money-back policy? What should be the sum assured? What are the things that I should keep in mind before buying a policy?
-Umesh

First, buy a term policy to provide maximum security to your family. You should purchase a sum assured of about Rs 70 lakh, which is 10 times your annual income, for a tenor of 30 years, which is the maximum term insurers provide. This term plan will cost you about Rs 6,000-8,000.
You could consider investing into equity through a growth-oriented unit-linked insurance plan with a tenor of 10 years or more.

I had taken five life insurance policies 17 years ago. All the policies will mature within the next three to four years. I want to surrender these policies due to a financial crisis. What should I do so that there is minimal loss?
-Peter

Since your policies were all purchased before 2000, they are traditional policies issued by Life Insurance Corp. of India. Some of these policies had a loan provision that allow you to borrow from the insurer with your policy as collateral. Check your policy contract for this feature as this may be your best option. If the loan facility is not available, then read each of your policy contracts carefully to understand if there is a surrender penalty. Surrender your policies in increasing order of surrender charges.

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