Hi Friends,
It seems our logic goes out of the window when we perceive something to be very cheap (a clear indication of greed working overtime) and that generally becomes a starting point for an inferior decision making process.
Almost all the online term insurance policies are being sold either without riders or with nominal riders (like accidental death benefit rider) as if the companies want to avoid this uncomfortable question of “Why riders aren't given in online policies?”.
They conveniently avoid critical illness rider (though some are offering a stripped down version of the same), premium waiver benefit rider, total permanent disability rider etc.,
They conveniently avoid critical illness rider (though some are offering a stripped down version of the same), premium waiver benefit rider, total permanent disability rider etc.,
If a term policy can be sold online by writing software, it should not be too difficult to write a few additional lines of software and add the riders too to the online policy. Then why aren't the insurance companies doing it?
Interesting fact is, most of these companies while selling the online “cheap” term policy without riders, have a very costly offline “with riders policy”.
As an example, we may check the variation in premiums of HDFC life insurance Company’s online term policy(named “HDFC Life Click2Protect” ) and offline term policy(named “HDFC Term assurance Plan” ) by making use of the following link and toll free numbers
Toll free numbers for finding the premium (of offline term policy - as I could not find the link to calculate the same on the company’s website) 18002669777 , 1800227227 .
We may find that offline term policy with riders would be Two to Three times as costly as online term policy.
Logic tells us that companies are not comfortable giving online term policies with riders at or near the price point that they are offering now.
The reason is, there is an insurance regulation / law, titled "Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002", that says "The allowable rider or riders on the product shall be clearly spelt out with regard to their scope of benefits, and in no case, the premium relatable to all the riders put together shall exceed 30% of the premium of the main product".
Please check the following link, to read the above regulation,
If the risk involved in riders has to be correctly priced-in, in the policy then the above condition necessitates that some of the price has to be transferred to the base policy premium.
Hence, overall premium of the policy increases for those policies that offer riders. The higher the risk involved in a rider the higher will be the premium.
Hence, overall premium of the policy increases for those policies that offer riders. The higher the risk involved in a rider the higher will be the premium.
This condition is put in place, as the name of the regulation indicates, to "safe guard policy holders' interest", by not allowing the companies to go bankrupt, as the law simply doesn't allow them to sell 'under priced' policies to 'beat competition'.
When insurance companies cut down the riders, they are not only cutting down the premium, but are also cutting down their risks significantly. Meaning benefits to the policy holder gets reduced significantly too.
An additional benefit for companies with online term policies is, they can attract a large section of people for whom "the only differentiating factor" is "price". Two birds with one stone. Good isn't it?
Insurance prices in every thing, even a company's brand gets priced in. It may be an emotional thing for us, but is a business for companies that sell it.
So, it is better that we pay a bit extra for a "quality product", rather than buying a "below par" product.
So, it is better that we pay a bit extra for a "quality product", rather than buying a "below par" product.
Online comparison sites offer data and there is no dearth of data these days. But, how we interpret the data is a matter of skill and that is where an adviser comes in to play.
One more question we have to ask ourselves is, we know that an agent / adviser is being compensated by us through fee / commission and is accountable for us. How are these online comparison sites being compensated ? Who are compensating them? How are they surviving?
No Free Lunches my friends.
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