Life Insurance: Online Term Product – who is benefited?

Online term products are gaining popularity in the recent past. Since this product is directly comparable unlike other types of insurance products, it is completely commoditised like any other product sold online. There is stiff competition among insurers to bring the rates further and further down. Since the premium rates are nose diving, one would wonder, are these rates sustainable? or Are insurers getting into suicidal competition? Is any one benefited because of this cut-throat competition?

Term Policy – Should be the first choice

Traditionally, pure term products are not very popular in India. There are many reasons for this. Customer mindset is one of the main reasons. ‘What do i get at the end of the term of the policy?’ is usually the question while buying an insurance product. You get nothing at the end of the term if you buy pure term and survive till the end of the term. This didn’t sound very attractive to many customers. However, pure term is the core life insurance product that addresses the real need of life insurance. It is the best way to get life cover with minimum cost. Hence, it should have been the customers’ first choice if insurance is the motive for buying a policy. However, due to lack of understanding of insurance need, pure term never gained popularity in the Indian market.

For Customer – Affordable option with full cover

The online term product is addressing this gap. It is in the interest of the policyholder to buy adequate life cover through pure term product. When you buy a savings product, the life cover is not very high and certainly not enough to meet the life insurance need. This is because of the savings element involved. If you increase Sum Assured, the premium increases significantly due to savings element. Pure term makes sufficient life cover affordable.

For Insurer – minimum expenses

From an insurers’ point of view, online term product minimizes the cost of distribution. Also online product has the advantage of minimum fixed expenses. Overall, insurer incurs less expenses in online product as compared to an offline product. Further, those who buy online are expected to be educated with health awareness and hence expected to have better mortality. Because of these reasons, insurers are able to offer best price for online term products. So, its a win-win situation for both insurer and policyholder.

Threats

However, there are some threats. Online frauds are increasing, even for term products. Insurance is bought for some sick and terminally ill lives through online. The aggressive mortality assumption is coming under threat due to this. Web aggregators are another threat to the online products. They are supposed to show only comparison of premiums. However, they are selling business through call center and demanding remuneration from insurers for the same in some form or the other. This is threatening the expense advantage that we discussed earlier.

If insurers manage to navigate through these threats, online term product is the best to increase the insurance penetration in the market and provide adequate life cover at a relatively cheaper price. If online sales increase to a significant level, it is in the best interest of the industry.