The rise in prices of household necessities may be burning a hole in your wallet, but at least one essential item is becoming increasingly cheaper. Life insurance premiums have progressively come down in the past two years with the launch of online term plans.

The latest offering, the i-Life plan from Aviva Life Insurance, is priced 16-20% lower than the cheapest online term plan in the market. A 25-year-old man needs to pay Rs 4,051 a year for a cover of Rs 50 lakh for 35 years (see table). This is almost 20% cheaper than the iProtect Plan from ICICI Prudential Life Insurance.

Online term plans have become a huge hit with buyers ever since Aegon Religare Life Insurance launched its iTerm plan in November 2009. In the first year itself, the company sold some 11,000 policies online with an average cover of Rs 65 lakh.
Online term insurance plan offer big savings
Its runaway success prompted other insurance companies to join the bandwagon. Kotak Life Insurance, which launched its eTerm plan in November 2010, has already sold 1,800 policies online with a combined cover of more than Rs 1,000 crore. Aviva's i-Life is the sixth online term plan in the market.

With each new launch, the deal has become sweeter for the consumer. Whether it is in the form of longer terms (policies of up to 35 years) or as insurance cover extending to beyond retirement (up to 70 years), customers have benefited from the heightened competition in the term insurance segment.

Some buyers, however, are worried that the terms and conditions of online term plans might have loopholes that will allow companies to reject their claims. They point to the high claim rejection ratio of some private insurers, especially the new players who have set up shop in the past 2-3 years.
But as we explained in detail in our cover story, 'How reliable is your insurance?' (9-15 May 2011), new insurance companies usually have a low claim settlement ratio. Gaurav Rajput, associate director, marketing, Aviva Life Insurance, says there is no difference in the terms and conditions of the company's online and regular term plans (Aviva Life Shield Plus). "As far as products and terms are concerned, they are similar except that one is sold online and the other through regular channels," he says.
If you are planning to buy an online term plan, keep in mind that the risk cover offered by the company and claim settlement depend on the authenticity of the information you provide.

The cover starts immediately after you make the online payment, but it is subject to your clearing the stringent medical tests that follow.

Also, the information you give about your age, income and existing insurance cover, as well as the health declaration, will be scrutinised very closely. Make sure there is no inconsistency. Don't hide any medical problem or deny that you use tobacco. Sure, this will increase the premium, but at least your claim will not be rejected later.

Online plans are cheaper because the marketing costs of the company and the perceived risk of death are significantly lower.

There is no intermediary between the buyer and seller, thus saving on commission. Also, as Rajput points out, the Internet user is perceived to be reasonably wellto-do with better access to healthcare, and, therefore, carries a lower risk than the average Indian.

If term plans can be sold online, why not other policies such as Ulips and pension products? Yet, not many such plans are on offer. Besides, the discount is not as steep as in the online term policies. Insurers say this is because a term plan is not a complex product.

"One only needs to compare the price of a term plan, whereas Ulips and endowment plans have other features that need to be explained to the buyer," says Rajput. Even so, companies should give buyers the option to pick policies online and save on the commission that the agents pocket.
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