Comment

A cousin of mine told me that he had lost out by following my advice. When I asked him how, he told me he had bought a term insurance policy for Rs1 crore for a period of 30 years after talking to me a year ago. At that time, he had paid an annual premium of around Rs21,000 for the policy.

He had checked out www.apnapaisa.com and a term insurance policy for the same amount was available now for an annual premium of around Rs10,500 inspite of the fact that he was now a year older (28 years old). He had ended up paying double of what he should have paid.

My cousin calculated the amount that he had lost by buying the policy a year early. The extra annual premium of Rs10,500 for 30 years, if invested at 8% per annum would have given him a corpus of around Rs13 lakh at the end of the period.

Clearly, life insurance companies have got in to a war for term insurance, which had hitherto been neglected. A lot of reductions in premiums are due to the use of the online mode as also from passing on the benefits of more efficient methods of payment such as ECS.

Some of these products can be bought only through the online mode and cannot be sourced through agents or any other medium.

First to launch this facility was Aegon Religare, with its iTerm product. This was one of the cheapest plans at the given point of time because of lower distribution costs. ICICI iprotect is the latest entrant in this field, with Kotak Preferred term (which is also available through agents) is vying for the honour of being the cheapest in most of the criteria. .

Health insurance companies have also started similar plans.
Recently, Apollo Munich launched a product called Optima Cash Plan that has both the options of buying the plan online or through agents. In case the policy is bought online, then the customer gets a discount of 5% on the premium.

Similarly, in the case of HDFC Standard Life’s term insurance plans, a discount of 10% on premium is offered in case one chooses the ECS mode.

In fact, the premium war for term insurance is set to intensify as a committee has reportedly prepared a new mortality table based on 2008-10 data.

It has considered the data provided by both Life Insurance Corporation (LIC) and the private sector insurers.

As per the data, mortality rates (the number of insured people who die every year at a particular age) have come down by 25-30% for the higher age brackets.

Once insurance companies start using this data, term insurance premiums are likely to come down by around 15-20%.

Returning to the case of my cousin, he did not really loose money. After all, he enjoyed a life cover for the year at the then-cheapest rates.

Of course, as his health status is the same, he can even now take a new policy at a cheaper rate and after receiving confirmation of the new policy, he can let the old policy lapse.

In fact, as rates are slated to drop further, this is likely to happen year after year, unless the life insurance industry starts offering the newer cheaper rates to its existing term insurance customers who are in good health at the time of renewal.

Here’s hoping that reduction on risk premiums spreads to critical illness plans as well, which have remained as expensive and are difficult to get.

The writer is CEO, Apna Paisa, a price & features comparison engine for loans, insurance and investments. He can be reached at hrdna@apnapaisa.com