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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Eliminate Agent’s commission – Buy Insurance policies online

Posted by Muthu on June 14, 2010

Do you plan to buy a term plan through an agent? If yes, our advice is that you give it a second thought. Today many insurance companies offer insurance products online. These include ICICI Prudential Life Insurance, HDFC Standard Life Insurance, Aegon Religare Life Insurance, Reliance Life Insurance, and Bajaj Allianz.

The policies sold online are often cheaper than those sold via agents. The reduction in price is mainly due to the elimination of hefty agent’s commission that companies shell out for their offline products. By going online, the company eliminates the middlemen and hence saves on the biggest cost in insurance – distribution cost or the cost of convincing the customer to buy the product.
 
In India, online insurance may not be as popular as in countries such as US and UK. But seeing the phenomenal growth in online travel between 2004 and 2008 (more than 50 times), we can expect a lot in the times to come,” say Yashish Dahiya, CEO of policybazaar.com, an insurance-related portal. He believes that we are currently in the nascent stage. Over the next four-five years, he says, the online segment will account for around 40 per cent of all the insurance sold in India. He also expects online insurance to grow much faster than online travel.
  
Online vs. offline purchase

When a buyer contacts an agent, the letter is more likely to push a product that earns him a higher commission. “Of the entire insurance market, 90 per cent products are not bought but sold. The agent sells what he wants to sell and the customer does not buy what he want to buy,” says Dahiya. This happens mainly because the agent is interested in earning the highest commission, so he hides information that he does not want the customer to know.

 
By contrast, when you buy insurance online, you eliminate the conflict of interest vis-à-vis the distributor by digging up information yourself and deciding what you want to buy. “Online there is a lot of personal involvement and transparency, so the chance of mis-selling gets minimised and you are more likely to choose the product that is the best for you,” says Dahiya.
 
It is difficult to buy a term plan, which provides the most inexpensive life cover, from an agent. The latter are unwilling to sell them because of the lower ticket size of the premium, and hence their commission. You are better off trying to buy a term cover online where nobody will try to dissuade you from buying this product (agents invariably push Ulips). Aegon Religare Life Insurance has launched a zero-commission term plan – i-term – which no agent will sell. The best way to purchase it is via the online mode.
  
Pros and cons

Purchasing insurance online is also convenient. You don’t have to travel to an office or be kept on hold on the phone. It saves a lot of time and effort. The websites of most insurance companies allow you to compare quotes from all leading brands and find the best deal. Most importantly, you save on cost by getting a cheaper product.

Online insurance purchase has its share of shortcomings too. One, since no agent is answerable to you, you should read the policy document carefully and understand its implications fully. Two, although the use of technology makes the entire process easier and saves time, people who are wary of internet transactions may not like to use this mode. Three, people who live in far-flung areas and do not have internet access will not be able to use this channel.

  
Modus operandi

Decide on the insurer after doing thorough research and comparison of features of policies from different insurers. Also check what price you will have to pay for the policy, i.e., the premium. Finally, before you choose an insurer, see if you fulfil the entire set of criteria for the issuance of the policy.

 
Once you have chosen the policy you will be required to provide personal details such as date of birth, address, sum assured, medical history, your present state of health, etc.
 
Ensure that you provide exact and correct details. Thereafter, you will have to select the mode of payment. Most companies allow you to pay online, by cheque, or by demand draft. If you choose to pay by cheque, the company’s representative comes to collect the cheque and documents from your home or office.
 
After you have provided the required details, the company’s back-end process starts. It will verify the information you have provided in the form. The company does so by sending a representative to verify and collect the required documents. The representative also clarifies your doubts (if any). In case a health check-up is required, the representative fixes an appointment with the doctor for you. Thus, online purchase does not mean that human interaction is eliminated completely.
  
How safe is online purchase?

According to Dahiya, it is safest to buy insurance online. He believes a person gets cheated most commonly when he is having an unrecorded conversation with an agent. “With the amount of mis-selling that happens in India, it’s the face-to-face meeting which is probably the worst way to buy because nothing is recorded there. When one buys online, everything – every session, every cookie – is recorded and so you have proof that you can show months down the line, which the company has to stand by,” says Dahiya. For its low cost, convenience and the way it eliminates conflict of interest, clearly online is the way to go when buying insurance.

 
Points to remember while purchasing insurance online

· Ensure that you make a comparison. One of the advantages of buying online is that you can at any time during the day    compare the quotes provided by different insurance companies. You may do so by either going to companies’ websites or to aggregator sites such as policybazaar.com.

· Read the policy documents and make sure that you know the policy’s terms and conditions.

· Look for riders, which are add-on benefits that you may buy and add to your policy.

· Before taking a buy decision, consult your financial planner about the right product, if you have one.

· While making the payment, do it on your own. Do not pass on your log-in details or PAN details to others for making the  purchase.

· Prefer purchasing on a recorded line.

· Do check all the important details over email, online chat system or phone before taking a decision.

 
(Source: Value Research)

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