Online insurance: Important dos to buy the RIGHT policy

Carefully observe these important steps before you hit 'buy' to buy an online term insurance policy.

A fast paced lifestyle, juggling work and life across multiple time zones, availability of various products online including life insurance is being perceived as a boon. This concept has caught the attention of the young generation due to the convenience it offers and not to forget the pricing which is almost 30 per cent cheaper due to the absence of agent's commission.

Does that mean identifying the right insurance product online is as simple as signing the policy document suggested by your insurance agent? An online term policy of Rs 1 crore for a 30-year-old male with similar features may be offered at a premium ranging between approximately Rs 7,000 to Rs 20,000. Which one would you opt for?

The first instinct would be to go with the cheapest plan but is that all that needs to be taken into consideration while identifying the right plan? There are certain key factors that need to be kept in mind, and with a little online research it should be a breeze.

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The author is chief evangelist, Perfios.com

The policy document

Purchasing insurance, irrespective of the mode adopted, reading the policy brochure thoroughly and understanding what's in store is always an important first step. When you purchase an insurance policy online, the onus is on you to ensure entire literature is understood thoroughly for various policies of interest to enable you to pick the right product.

Typically a term plan is a replacement to the future earnings of the breadwinner of the family and hence the insurance amount (sum assured) should be in line with the requirements to fulfil the needs of the dependants in the absence of the earning member.

The details need to be viewed in line with a definitive time frame within which it would be comfortable to believe that there would not be any further dependency on the breadwinner of the family.

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Filling of online proposal form

It is critical not to hide any details while filling up the application form.

Although some information pertaining to the age, weight and more may seem miniscule but could become a solid ground on which a claim may get rejected.

It is a myth that by keeping the medical conditions under wraps one can purchase insurance at a lower cost. By concealing material facts you do not realise the jeopardy the family is being put through as the chances of a claim getting rejected become paramount.

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Certain insurers providing online insurance insist on medical tests which is a good sign. The premium may get marginally expensive on this account but that's worth it.

The tests get conducted at insurer recommended hospitals and hence significantly reduce the chances of the claim getting rejected in future.

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Claim settlement ratio

It is the number of claims being settled against the total claims received in a year.

The claim settlement ratio of LIC is better than that of the private life insurers. Settlement ratio of LIC increased to 97.03 per cent during the year 2010-11 when compared to 96.54 per cent during the previous year.

Similarly for private insurers, settlement ratio has gone up to 86.04 per cent during the financial year 2010-11 when compared to 84.87 per cent during the previous year.

The insurers in the private space that showcased high settlement ratios are HDFC Life with 95.41 per cent Birla SunLife with 94.66 per cent and ICICI Prudential with 94.61 per cent (Data taken from IRDA Annual Report 2011).

This data needs to be viewed in conjunction with the commencement year of insurance operations. A claim request received by an insurer who has set shop recently would have all the claims requests within a short period, hence requiring greater level of scrutiny which may lead to a lower settlement ratio.

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Claim repudiation ratio

Claim rejection is a major concern for all while picking an insurance policy. If a claim is rejected the financial security of the beneficiaries is at stake.

The claim repudiation ratio furnishes the number of claims rejected against the total requests received during the year. It provides an insight into the possibilities of a claim getting refused.

The ratio helps in understanding the insurers due diligence process while accepting the policies. An insurer with strong underwriting guidelines may have a lower claim repudiation ratio. As per the IRDA Annual Report 2011, the industry repudiation ratio has gone up to 2.04 per cent in 2010-11 from 1.93 per cent in 2009-10.

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Financial strength of the insurance company

This is one of the major considerations that should to be checked before choosing an online policy. The policy pricing and other points discussed above will not matter if the company is in financial difficulties.

Conclusion

The above-mentioned points are vital in ensuring the right product is identified during insurance transactions. Identifying the right online insurance product may give a feeling of spending your valuable time but the basic idea of purchasing insurance policy is to provide a financial cover to your loved ones in your absence.

You may tend to lean towards the generic online comparison charts to let it make a decision for you and your family's future. You can make it a two-step process; first a coarse filter to sift out what obviously doesn't fit your needs and then a finer filter as you will end up with more than one policy that may seem to fit the bill. You can then take it a step deeper and apply personal checklist instead of completely relying on insurance comparison charts available online, you can create one of your own on the factors that matter the most to you.

In addition, before you single out the insurer, you can read online reviews and participate in online forums to gain better understanding of the insurance company's customer service.

Once a right policy is identified, it is no longer difficult to manage your insurance. There are money management tools like Perfios available that provides a comprehensive view of your finances at a click of a button. Once all the information is uploaded, the software not only tracks your finances but is also capable of reminding you when your next insurance premium payment falls due!

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