Look at claims settlement ratio while buying term insurance plan

Though an increasing number of people are now realising the value of term insurance, a major percentage of the Indian population continues to be ignorant about the new term insurance plans sold by both public and private players in the market. This, to some extent, explains the continuing reputation of LIC in the insurance market. However, a comparison of the premium charges of LIC with private insurance companies has revealed the former being costlier than the latter. 

LIC officials say, “Products are priced based on factors such as target segment, the channel through which they are to be sold, demographic profile, ticket size of policies, reinsurance arrangements, etc. We keep on reviewing our premium rates. In the past also, we have re-priced our products and will continue to do the same as and when warranted. Our term product is starting from a minimum sum assured of Rs 6 lakh to provide coverage to all socio-economic groups of the society from every nook and corner of the country. To do so, we offer term products offline also whereas very few insurers in the market offer this product offline. The product should not only be seen in the context of premium but also the context of availability to all sections of society as well as claim settlement. Since there is a price difference between offline and online channels for various reasons and a large proportion of LIC's products is sold through offline channels, it would not be fair to compare our premium rates with other insurance companies.”

Does charging lower premiums help?

Premiums of term plans sold by private insurers are lower than LIC and other government-sponsored insurance companies in India. Explaining how cheaper plans tend to draw more attention from customers, Anjali Malhotra, chief customer, marketing and digital officer, Aviva Life Insurance, says, “Having a lower cost helps. Customers look at the premium amount they will be paying when they make a purchase decision.” However, Munish Sharda, managing director and CEO, Future Generali India Life Insurance claims to be different. Sharda says, “Pricing becomes the key determinant for choosing from term plans which offer similar benefits. Having competitive pricing, to a certain extent, also helps in improving the market share. However, price is not the only element which influences the sale of a term plan but there are many other factors that come into play, such as additional benefits, ease of buying, claim settlement, the suitability of cover, need for advisory, etc.” 

Increasing competition has forced many insurance players to lower their premium charges in tune with customer demands while also protecting their existing market share. Relatively new insurance companies believe that price warfare will continue to remain. However, Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance, says, “We currently have a fairly and competitively priced e-term plan available on our website, www.Indiafirstlife.com. IndiaFirst Life, after the launch of the new e-term, gave its customers an option of reducing premium (for the same risk cover) or increasing risk cover (for the same amount of premium). We will only reduce rates if our current portfolio trend indicates the possibility of further improvement given the underlying customer mix.”

The ideal way to buy term insurance 

CS Sudheer, founder and CEO, IndianMoney.com shares the ideal thought process that must be there while paying for term insurance. Sudheer says, “Your first thought must be a sufficient sum assured on the term life plan. Also, your family must have enough money to enjoy the lifestyle they currently lead and repay all loans on an untimely demise. It is important not to opt for a shorter tenure just to pay lower premiums, else you will be forced to avail a new plan at an older age when premiums are high. One must always select an insurer with a high claim settlement ratio. This increases the chances of your family's claim being honoured.”

Online versus offline premiums

There is a gap in the premium charges of plans sold both online and offline, which is said to only widen in the future. Karthik Raman, CMO and head – Products, IDBI Federal Life Insurance, says, “Offline plans are approximately three times more expensive than online plans. With the advancement in technology, things are likely to become simpler and easier, which will bring prices down further and make online plans even more attractive to customers.” 

However, it is up to a company to decide whether to increase term insurance sales through online mode or continue selling through the offline mode. Casparus Kromhout, managing director and CEO, Shriram Life Insurance, says, “Digital is a key part of our future strategy. We have adopted the strategy of driving 'customer-centricity' through digital innovative avenues. Though digitally assisted sales are becoming popular, we believe that the need for physical presence in insurance selling would continue. SLIC operates with a multi-channel distribution set-up and relies on salesperson that meet customers to spread awareness and facilitate sales. We would continuously focus on these salespeople with special attention towards digitally assisted ease of business facilitating spread protection cover in our segment.” 

What puts LIC ahead of others? 

Innovation is the key to growth. This explains why various insurance companies in India introduce new insurance products in sync with their customers' varying needs. However, preference for LIC products continues among today's customers too. Vineet Patawari, co-founder, stock analytic app StockEdge and financial market learning portal Elearnmarkets.com, says, “LIC is the oldest, biggest and most trusted organisation in the insurance sector in India. The factor which makes it the most preferred option is its claim settlement ratio of greater than 98% which is consistently highest in the industry.” Suresh Sadagopan, founder, Ladder7 Financial Advisories, says, “LIC is a company of 55 years standing and is a trusted name. However, even many private companies will be completing 20 years of their existence now and are compliant with Irda norms, which takes care of the credibility aspect. It is more of a level playing field now. One who wins today will be the player who offers products with benefits and value suited to clients they serve, with excellent customer service thrown in.”