Life Insurance Online Term Plans: Review

Photo by philipp daun

Term life insurance is finally getting a push. The initiative was taken by AEGON Religare to provide a remedy for people suffering from K.I.L.B (Kum Insurance Lene ki Bimaari); the baton was subsequently picked up by ICICI Prudential Life Insurance and now gradually other life insurance companies are trying to follow suit. In the month of October and November 2010 itself, three life insurance companies (Kotak, MetLife and Future Generali) have entered the fray to sell online life insurance term plans through the internet. So here we try to review these Online Term Life Insurance Plans and answer the common questions you have about them:

Everything you want to know about Online Term Life Insurance Plans:

1. What are Online Term Life Insurance Plans?
These are pure protection life insurance policies available for purchase only on the net. These Online Term Plans provide you with instant life insurance cover with simple online application process.


2. Which Online Term Plans are available in the market as of now?
As on date (26 Nov 2010) following Online Term Plans are available in the market:

a. AEGON Religare iTerm plan
b. ICICI Pru iProtect
c. Kotak Life e-term and Kotak e-Preferred Term
d. MetLife Met Protect
e. Future Generali Smart Life

Note: Kotak Life Online Term Plan has two variants: Kotak e-term for sum assured up to Rs 24.99 lakh and Kotak e-Preferred Term for sum assured of Rs 25 lakh and above, all other terms & conditions remaining the same.

ICICI Prudential Life Insurance also offers two variants of iProtect: Option 2 of ICICI Pru iProtect offers ‘Accidental death benefit’ rider which is equal to sum assured (subject to a maximum of Rs 50 lakh).


3. Why are Online Term Plans cheaper than conventional term plans?
Due to absence of agents / distributor from the picture, no commission needs to be paid and that results in direct savings which is passed on to the customer in the form of lower premiums.


4. Is the buying entirely online?
No, it’s not. First, if required one has to go through a medical test. Second, documents have to be handed over to the company representative who might never come to collect it.


5. What is the process of buying Online Term Plans?
It consists of two parts: Online and Offline
Online Process: First decide about the sum assured and term of the policy; fill up the online proposal form; make the payment online

Notes:
a. Some Online Term Plans doesn’t support Mozilla Firefox, you will require Internet Explorer

b. Know your correct weight, height, previous major illnesses, family medical history and details of all previous life insurance policies before you start the online process

c. For making online payment, you’ll have to use your own credit card or internet banking account. For example, terms and conditions of ICICI Prudential Life Insurance iProtect specifically mention that “Use of credit card or internet banking account of persons other than the proposer’s will lead to decline of proposal/payment”. I presume that all other online term plans also impose the same restriction.

Offline Process: Go for medical tests if required; hand over the documents such as age and income proof to the company representative.


6. What are the various payment options available in Online Term Insurance Plans?
Usually two modes of online payment are allowed: Credit cards and Net banking except in case of MetLife India Insurance. MetLife Met Protect doesn’t allow internet banking account but allows payment via Credit card/Debit card, Cheque and MetLife’s IVRS (Interactive Voice Response System).


7. What are the major benefits of buying these Online Term Plans?
The one and only benefit is lower cost than offline term plans.


8. What are the other major differences with offline life insurance term plans?
No agents available to guide you; non-availability of riders; available only in selected cities; need to be net savvy; only online payment options.


9. Which life insurance plan is the cheapest among the 5 Online Term Plans?
In case of a 30 year non-smoking male looking for term plan for 25 years, e-Term / e-Preferred Term from Kotak Life Insurance is cheapest up to a sum assured of Rs 60 lakh, beyond which iProtect from ICICI Prudential Life Insurance becomes the cheapest Online Term Plan. However, the difference in premium is not significant except for a policy amount of Rs 25 lakh and Rs 2 Crore.


10. Can an NRI buy these Online Term Plans?
No, these Online Term Plans are meant for resident individuals only.


11. Are these Online Term Insurance Plans similar in all respects other than premium?
No, these Online Term Plans also differ in respect of minimum/maximum duration, minimum /maximum sum assured, maximum age at maturity, premium paying frequency, availability of riders etc.

Furthermore, unlike other Online Term Plans, ICICI Prudential Life Insurance iProtect also provides you option to buy ‘Accidental Death Benefit’ Rider on payment of additional premium. Kotak Life e-term offers flexibility to Step-up and Step-down your insurance cover in future based on your needs. Let’s compare them on various parameters:

Online Term Plans Features: Comparative Chart



12. Is there any limitation of Online Term Plans?
Inconvenience involved in buying these plans. Read about the bad customer experiences and the difficulties being encountered by people while buying the ICICI Pru iProtect online term plan.


13. What if I live in a city not included in the plan coverage?
In case your city is not covered, you’re not allowed to purchase an Online Term Plan. However, the ICICI Prudential Life Insurance iProtect provides you an option to buy it in offline mode i.e., through agents/brokers in which case you have to pay a slightly higher premium which should be approximately in the range of Rs 100—500. Still, it is much lower than the conventional offline term plans.


14. Is there any limitation as to the maximum sum assured?
No, there is no such restriction except in case of Future Generali Smart Life. The maximum coverage allowed under all the other four online term insurance plans is decided by the respective company on case-to-case basis depending upon your income/age/lifestyle/medical history etc. which is subject to underwriting.


15. Should I buy these Online Term Plans?
No, in view of bad customer experiences, it is better to follow a wait and watch policy. If you’re in a hurry consider the cheaper options among the conventional offline plans.


16. What if still want to buy one of these Online Term Plans? Are there any pitfalls?
Before rushing to buying into online term plans, understand the following points:

i. If you are buying ICICI Pru iProtect don’t go for Accidental Death benefit rider. It is always preferable to buy a separate Personal Accident Policy which will also cover you for Permanent and Temporary disability benefits.

ii. If you would like to buy AEGON Religare iTerm policy, know that claim settlement record of the company is very poor. Furthermore, as per the iTerm policy conditions, at the time of making a claim, in addition to a death certificate claimant is also required to provide ‘Certificate of Doctor/Medical Officer certifying the cause of death’. It seems to be a ridiculous condition and I suspect the intention is only to raise spurious objections to delay the settlement of claim or reject it out rightly. So Beware!!!

iii. If you buy Kotak e-term or Kotak e-Preferred Term Plan, ensure that you select annual premium payment option instead of monthly/quarterly/half yearly payment option and if going for MetLife Met Protect avoid single premium payment option.

iv. If you’re already having a life insurance Term Plan, please don’t discontinue it to buy the cheaper online version. You can surely add to your existing policy in case you need to increase your risk coverage.

v. Finally, please don’t get tempted to hide any material facts…disclose correct income, lifestyle and health related particulars. Also ensure that you declare all the previous life insurance policies otherwise you might face problem at the time of the claim.


17. Can I claim income tax deduction under Section 80C as payment is neither made in cash nor through a cheque?
Yes, you can definitely claim tax deduction under Section 80C even though payment is made online through internet bank account or credit/debit card.


18. Whether the premium calculated as per the Online Premium Calculators shows the total cost to be borne by the applicant? Or, are there any other charges involved?
Premium shown as per the online term plans brochures/calculators is exclusive of service tax and education cess except in case of Kotak Life e-Term and e-Preferred Term. To arrive at the total cost, you need to add 10.3% to the premium calculated as per the online premium calculators. For example, if the premium shown by the online calculator is, say, Rs 3,900, you’ll have to pay an extra amount of Rs 402 as service tax thereby raising the total cost to Rs 4302.

Please also note down that these rates are standard rates applicable to non-smoking healthy male and you might be asked to pay more depending upon your lifestyle/health conditions.


19. Should I buy one policy or split the coverage between two policies?
I’ve discussed quite elaborately that it is always prudent to buy a single term policy instead of splitting your total coverage and buying multiple term insurance policies as it involves various hassles in addition to extra cost.

But, it’s ok, if you want to go for splitting your total risk coverage by buying two different plans from two different insurance companies so as to better manage your risk due to poor settlement record of various life insurance companies.

However, as it involves additional cost, it is always prudent to take an informed decision by calculating the ‘Cost of Splitting’ your sum assured. For instance, continuing the above mentioned example of a 30-year old non-smoking male, if instead of buying a cover of, say, Rs 60 lakh from ICICI he buys 30 lakh cover from ICICI and balance 30 lakh from iTerm, he’ll be required to pay an extra sum of Rs. 2,580 every year excluding service tax. So, the total cost of splitting comes to Rs 71,143(2,580*1.103*25).


20. How should I choose the most suitable term plan in terms of sum assured and premium? How do we make a premium comparison between these Online Term Plans?
There’s still immense scope for planning, even if you’ve already decided your risk coverage. Ok, let’s first calculate the premium (exclusive of service tax) on various online term plans for varying sum assured in case of an individual, say, a 30year old healthy non-smoking male who would like to buy a term plan for 25 years.

Here’s the Premium Comparison Table:



First, let’s exclude Future Generali Smart Life from the comparison because premium rates are too high. Therefore, we are now left with four online term plans to compare.

Second, another interesting point to note is that for a sum assured up to 24 lakh, Met Protect is not available and among the rest three, Kotak e- Term is slightly cheaper than the ICICI Pru iProtect and Aegon Religare’s iTerm. For a term plan insurance coverage anywhere between 25 lakh and 49 lakh, we observe that iTerm is very costly as compared to other three online term plans so it is better to avoid it. For sum assured of 50 lakh and more, all the four term plans are almost at par except iTerm.

Finally, here’s a little secret about these term plans:

Term plans offer you discount/rebate after you cross a particular threshold. This threshold limit is 25 lakh in case of iProtect and e-term and Rs 50 lakh for iTerm and Met Protect.

If you want to buy ICICI Pru iProtect, avoid buying a cover for 20/25 lakh, instead go straight for Rs 30 lakh cover. In fact it will be outright foolish to buy coverage of Rs 25 lakh from iProtect because by opting for Rs 30 lakh cover, you get additional 5 lakh coverage absolutely free at no additional cost.

Similarly, in case of kotak e-term, instead of buying a cover between 20 and 24 lakh, you will be better off by opting for a sum assured of Rs. 25 lakh, because you get additional sum assured of Rs. 5 lakh by paying just Rs 100.

Applying the same logic to Aegon Religare iTerm where the threshold limit for discount starts from 50 lakh onwards, it will be another height of financial stupidity if somebody go for a sum assured of anywhere between 30 lakh to 49 lakh ; e.g., in the above example by making a jump from 30L to 50L, an individual can buy an additional coverage of Rs 20 lakh at an extra amount of just Rs 440 or somebody looking for a 35 lakh sum assured can get an additional sum assured of Rs 20 lakh for Rs 140 (excluding service tax).


Also see:

1. Review of highest NAV Guarantee plans
2. Best ELSS Funds
3. Life Insurance Term Plans: FAQs
4. Section 80C Tax Savings – 10 Smart Tips

PPF: 11 Pitfalls to Avoid

Photo by Samout3

Public Provident Fund (PPF) is really very interesting and a great topic to write about. I’ve already mentioned practical tips to be kept in mind while opening and operating a PPF account. However, there are many pitfalls which you should avoid while investing in a PPF account.

Here’s a list of 11 things you need to be careful about while operating your Public Provident Fund Account:

1. Don’t open two PPF accounts in the name of one individual. Even if your current account is inactive, you’re not allowed to open a new PPF a/c.

2. Don’t deposit more than the maximum allowed. You won’t get the interest on excess deposit in your PPF account.

3. Don’t forget to deposit a minimum amount of Rs 500 every year to avoid the PPF account become inoperative. You will be denied loans / partial withdrawal before maturity.

4. At the time of extension of PPF account, submit Form H, otherwise the continuation will be deemed as “extension without subscription” or “irregular” and you will be denied interest on additional deposits and also become ineligible to claim section 80C deduction.

5. Don’t forget to nominate, otherwise your family will have to obtain a succession certificate to receive the PPF proceeds in case of your death.

6. Avoid premature withdrawals and loans unless there is an emergency because PPF is one of the best long term saving instrument available to you.

7. Understand that post-maturity of PPF if you choose 'extension without further deposits', you can’t change it to 'continuation with further deposits' after the expiry of one year. So make an informed choice.

8. Don’t recycle the PPF account because it defeats the very purpose of opening a Public Provident Fund account.

9. After the subscriber’s death, nominee should consider closing the PPF account at the earliest instead of continuing it because a nominee can’t appoint a further nominee.

10. While making deposits in your PPF account at the end of the financial year for tax savings purpose ensure that you deposit the cheque / demand draft well in time…remember that date of realization is treated as date of deposit. If the cheque/draft is not encashed by 31st March, the amount will be treated as deposit for the next financial year and you will lose tax benefit for the current financial year. This is as per the amendment made by the Government of India in February 2010 in the Public Provident Fund Scheme. Earlier in case of PPF (unlike other small savings), date of presentation/tender of cheque was treated as date of deposit.

11. Don’t open a PPF account in the name of your HUF because vide an amendment made in the year 2005, PPF account can’t be opened in the name of HUFs although existing accounts are allowed to earn interest till their maturity.Besides, even the existing PPF Account in the name of HUF is not allowed any further extension after the initial maturity period of 16 years.


Finally, be aware of the rules and regulations regarding the correct operation of Public Provident Fund scheme as updated from time to time instead of relying on the advice of bank officials because in case of wrong advice you’ll have to bear the consequences… read this interesting incident mentioned by Ms. Sucheta Dalal in moneylife.


Also see:

1. Comparing PPF with NSC
2. How to invest in PPF
3. PPF Interest Calculator
4. Public Provident Fund FAQs