When taking term cover, undergo tests to ensure smooth claims

Published in Mint on, Apr 16 2013, Written by Kapil Mehta

I am 28 years old and I want to buy a term insurance cover of Rs.1 crore. What is the difference between term plans offered by public and private insurers? I understand public insurers call for medical tests if the sum assured exceeds a certain amount. I can’t subscribe to the plan online and the documentation is likely to be extremely intricate. And yet I am expected to pay an annual premium that is at least twice as expensive compared with quick-fix, pure term insurance plan offered by private insurers. Is this about outdated mortality tables at public insurers or is there a catch in online plans offered by private insurers? After all, the request for a medical test is not unreasonable and despite the online temptation, I am leaning in favour of a scheme provided by a public insurer. Is that a wise choice?
—Udit

You should ask three questions, in a sequential manner while making your decision. The first is whether you need the help of an advisor. A trusted intermediary can help you select a good plan and also follow-up with the insurer for claim payment if you die. However, plans sold through intermediaries are 20- 40% more expensive.
The second question is whether your should undergo medical tests or not? I advise that you select a sum assured or term that requires you to undergo a medical examination. This considerably reduces the circumstances under which an insurer can decline a claim. Avoid plans, online or offline, that promise guaranteed issue and no medical tests.
Finally, ask for the cheapest plans that meet your requirements as specified in response to the first two questions. There is little value in paying more for term insurance. Term insurance covers offered by all insurers are reliable. The regulator maintains a close watch on claim payments and, in any case, the risks are most often reinsured with global, well-rated reinsurers.
In my view, the public-private sector difference is not relevant. All companies follow comparable rules of claim payment and are supervised in a similar manner by the insurance regulator.
Pricing varies considerably across insurers. One key reason is the insurer’s strategy on term insurance. Many find this risky business and keep prices high, whereas some insurers view term as profitable and are more willing to keep prices low. Also, insurers who have launched term insurance products in recent years have the benefit of a few years of mortality experience in the Indian market as well as updated mortality tables. Consequently, they have steadily reduced premium rates for term covers. Do keep in mind that the concept of term insurance was introduced less than 13 years ago and the market is still discovering the correct pricing.

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