India is witnessing proliferating internet usage and people are getting increasingly comfortable with transacting ‘virtually’. This, coupled with technological progressions, has made online purchase of services such as insurance quicker, simpler, and immensely popular, compared to the offline mode of insurance purchase.
Most insurance companies have begun offering insurance products on their websites. Online has become a one-stop destination to shop for different insurance products at different prices, giving people a better opportunity to scrutinise, compare and thereby make better purchase decisions.
It is seen that people are particularly inclined to online term plan, because term plans specifically turn out to be cheaper than their offline equivalents.
But what makes an online term insurance plan more economical compared to its offline counterpart? Is there a hidden catch? Let’s find out.
Contributing to lower costs of online term insurance plans is the fact that these plans are fundamentally simple, offering just death benefits. Therefore, term insurance plans are easy even for a layperson to understand and he/she can easily buy it online without confusion.
No Administration Expenses
Selling insurance offline is expensive. Apart from numerous administrative expenses, it involves plenty of paperwork, marketing and selling costs – all of which constitute a part of the final policy cost. These expenses also spill over to the premiums that customers have to pay.
Contrarily, selling term insurance online does not involve these outlays. Customers just need to go online, choose a plan in tune with their specific needs and conduct all associated transactions on the web. Since a major part of the transaction is online and paperless, the policy processing cost saving is passed on to customers. Website creation is a one-time expense, and website maintenance and updates involve minimal spending.
In a nutshell, online insurance dealings translate to a high-return low-expense channel for insurers and offer hassle-free transacting for customers.
You may like to read: 10 mistakes to avoid while buying a term policy.
The commissions insurance companies pay to brokers or agents hired to market their insurance products form a sizable chunk of the premium charged to customers. This is a key reason why offline term insurance plans cost more, involving higher premiums.
However, no commissions are involved in online term insurance sales - this lowers distribution costs, premiums, and overall pricing. The resultant cost reduction works to the customers’ advantage, since insurers pass on the economic benefits to them, making ‘lower pricing’ the USP of the term plan sold online.
Better Customers, Lower Risk
Transacting online for insurance means profiling potential customers based on their comfort level and frequency of internet use. Insurance companies assume that customers purchasing insurance online are usually better educated and informed, more careful about their health, and have access to better health-care amenities, compared to people who are not big on internet use. Online customers therefore pose a lower risk for insurance providers.
Insurers are also able to get more detailed customer information through the online sales mode. Too much information about customers is not available to insurers when selling insurance offline, as they have to battle time constraints, deal with agents/brokers, and manage things like incomplete forms (due to agent-buyer trust).
Perception About Online Insurance Buyers
As mentioned above, insurance companies have a better overall perception about online customers. This positive perception translates to better morbidity and mortality assumptions, leading to further price reductions.
The claims Repudiation Myth
It is often assumed that the lower cost of an online term insurance plan is because of claim repudiation by the concerned insurance company. This is a myth. The truth is that disclosure levels on online proposal forms are very high, making all the information complete and transparent, leaving no room for claim repudiation.
Note: Every company has its own underwriting rules and claim records. This, along with how aggressive the insurers’ marketing strategies are, lead to varying online term plan premiums offered by different insurers.
The Future is Online
The above factors explain why online term plans are cheaper than offline plans. There is no other caveat, catch or downside in buying a term insurance plan online.
An increasing number of people are opting for online term insurance policies since they are less expensive, while fulfilling the core objective of providing adequate life cover at affordable prices. Online term insurance plans now constitute a major part of the insurance market - they are truly the future of insurance.