Term insurance policy provides pure death risk cover with no further benefits attached unlike other insurance policies which provide for survival benefits as well. The term insurance policies are time defined with no claim paid once the policy duration expires i.e. These policies are limited time based which implies that the family gets the claim in case of untimely death which occurs during the policy period not beyond the term for which the policy is taken. No payment received if the policyholder outlives the term of the policy.
Upon expiration, the policyholder may decide to either renew the policy or let it lapse. If the policy lapses, there is no reimbursement of the premium paid over the life of the policy.
In case of term insurance the premium component is least in the initial period or if the policy is taken at a young age but it rapidly increases with the age of the insured. This rapid increase is due to the mortality rate being higher as age increases.
The traditional term plan involves the intervention of the agents in order to buy the plan. Thus the agent's commission, office expenses are loaded along with the premium charges resulting on higher premium rates compared to online term plan.
Due to the penetration of internet being at its peak into the lives of the younger generation in the urban India, the insurance companies felt the need to introduce the concept of ONLINE TERM PLAN. This plan is designed with the concept of ‘direct to customers' proposition, leading to lower operational and intermediary costs which results in lower premium burden on the customers. The online term plans therefore become much cheaper than the traditional offline plan.
The main differentiating factors between online and offline term plans:
1) Low distribution Cost
The main difference between online and offline term plan is that the online term plans are available at approximately 35-40% lower premium rates since there are no agent's commission or other office charges involved resulting in lower premium rates. The traditional agent's commission is 30-40% for the first policy year and 5-7% and the years after that in offline term plan. Since online term plan is bought directing from the websites there are no such commissions involved.
The online mode of buying gives a wide range of choices which are easily accessible which makes buying a term plan a very simple process. But, one needs to study each plan in detail since there is no agent assistance in this case. On the flip side this clause of no agents in picture can be considered a boon since there have been cases where the agents have mis-sold the policies and policyholders have faced quite a lot of financial loss. At times resulting in the rejection of claims.
3) Claims Settlement
The policyholder at times are jittery about the claims settlement part in case of the online policies since there are no agents who can be contacted in case something goes wrong during the settlement process. Also, since the insurer does not provide separate claims settlement data for online and offline term plans, it is difficult for the insured to reply on this mode.
But, since the IRDA has imposed strict rules for the insurer, if the information and details provided by the policyholder is true and as per the requirement, the insurer cannot reject the policy (if they have to) after 2 years of policy period. In case the policy is still rejected, the policyholder has the right to contact the insurance ombudsman to seek clarifications.
4) Sum Assured
The Sum assured offered by the online term plan is relatively higher than the offline version. The main reason being the online term plan reduces many of the administration costs involved in the offline version. Also the medical tests are mandatory only beyond a fixed minimum sum assured.
Thus, looking at the above factors we can certainly say the online term plan definitely stands out in comparison to the offline version.