LIC's online term policy is expensive

However, a high claim settlement ratio is in its favour. For a cost-conscious buyer, there are cheaper options

When an industry leader with a market share of almost 70 per cent is among the last ones to introduce a product, there is a lot of curiosity. Last week, it was the same with Life Insurance Corporation of India (LIC) when it launched its online term plan. In the past few years, almost all players had introduced this product.

The good: LIC's online term plan is cheaper by 35 per cent than its own offline product. The bad: Its online product, much like its offline product, continues to be on the costlier side in comparison to other players in the same segment.

For example, for a 30-year-old healthy person seeking a sum assured of Rs 50 lakh, LIC's e-term plan costs Rs 8,202 for 30 years. Reliance Online Term charges only Rs 4,029 for a similar plan. Others like Aviva, Max, Birla SunLife, HDFC, SBI and Bajaj Allianz charge Rs 4,600 to Rs 7,600. Only ICICI Pru iCare is more expensive at Rs 9,470. Dhaval Gangar, certified financial planner with My Financial Advisor, says: "The premium rates are surely not attractive."

Suresh Sadagopan, financial planner, believes things are getting better at LIC from a premium perspective. "Earlier, the premium difference between LIC and other private players was almost two or two-and-a-half times but they have reduced their premiums over time and now it is more competitive," he says.

But LIC scores on its claim settlement ratio (CSR). According to Insurance Regulatory and Development Authority's annual report, LIC has the highest percentage at 97.73 per cent (see table). Of course, given the high number of policies managed by the government-owned insurer, the sheer number of rejections would be much higher. However, there are many players whose CSR is languishing at 20-40 per cent. Consequently, Gangar believes that given its trusted name due to government ownership, policyholders are more reassured while buying any product from the insurer despite it being more expensive. "However, private companies are catching up in this regard," adds Gangar.

In the past few years, insurers have reduced the cost further by introducing online term plans. Online term plans are generally cheaper as there is no commission payable to the agent. Additionally, an online buyer is considered to be a comparatively low-risk customer as he is someone perceived to be educated and fills the details himself. Sadagopan says he normally recommends online policies for everyone. And, for a good reason, too. The premium for a term plan is much less. Even though there are no survival benefits - that is, you will end up losing the entire premium if you survive the policy period - the savings are substantial.

Even within LIC's repertoire, products are priced differently. For a 30-year-old seeking a sum assured of Rs 50 lakh for 30 years, LIC will charge Rs 8,202 for an e-term, Rs 13,090 for an offline term policy, Rs 1.64 lakh for New Jeevan Nidhi (pension plan) and Rs 1.72 lakh for New Jeevan Anand (endowment plan). However, the latter two will provide survival benefits.

Financial planners always advise that to cover your life it always makes sense to buy term insurance instead of any unit-linked insurance plan or traditional policy. Ideally, the salary to insurance ratio should be 8-10 times. In other words, if someone has a salary of Rs 10 lakh, he should have life insurance of Rs 80 lakh to Rs 1 crore. This is especially important for people who have dependants such as parents and children. Financial planners suggest the insurance coverage be reviewed every three-five years. Importantly, it should be reviewed when there are important events such as purchase of a property, birth of a child, etc. So, should you buy LIC's new offering? If you already have substantial insurance, there is no need to add to it, even if it is sold on the plank of tax benefits. Towards the end of the financial year, agents aggressively push life insurance products because the buyer gets tax benefits under Section 80C. It makes little sense to buy policies for tax benefits as there are better options in
the form of equity-linked savings scheme or public provident fund and others.

If you have some insurance and want to add to it, the advice from Sadagopan is to check if the earlier policy cost more than the new one. If so, then it makes sense to close that policy and buy a completely new one with a higher sum assured.

A word of caution: Don't just look at the premiums because as you grow older, the medical tests may not be favourable. In such circumstances, you may be charged extra by the company. It would make sense to first buy a new policy before closing older ones. But for the cost-conscious, LIC remains expensive and there are many cheaper options.