LIC online term insurance: Review of Human Behaviour!

 LIC has finally launched an online term insurance product: LIC’s e-term. Obviously, this has created a lot of buzz among agents and the general public – that is the ones not worried about getting nothing back in return!

Here is what, in my unimportant opinion, this news tells us about human behaviour. Did you come here thinking this is a review of LIC’s e-term plan? Sorry, only ghosts and nominees can review term life insurance products!

1. People delay the purchase of term insurance

One the one hand you have cheap online plans from privates (until yesterday!). On the other hand, you have LIC with its high claim settlement ratio but expensive premium. This naturally leads to confusion that in turn leads to delay. Throw in the possibility of the online plan from LIC, announced many months ago, the delay just got longer!

People who delayed the purchase for a term plan, for whatever reason, are lucky to be alive to hear the news of e-term. It is sheer dumb luck at that! Unfortunately, the e-term premiums are still 30-40% higher than other online term plans. Here are a few e-term premiums for a sum assured of Rs. 1 Crore

LIC-premium

Calculated using tool available at the e-term purchase portal

Notice that as age of the applicant advances, the online premium tends towards the offline premium! Ashal Jauhari made an interesting observation in this regard,

"LIC people (read underwriters) have intelligently put the prem. on higher side almost equal to offline plan for 35+ age band. Why? The younger lot in all probability is going with online or offline plans of pvt. insurers so relatively cheaper prem. (from LIC's own standards) has been offered. For 35+ age band, people w'd tend to prefer the brand name of LIC and this is where the prem. are almost same. So the mental comfort of agent handling the policy 'll be there and rest you can understand"

God knows how long they will now wait before deciding which to buy! Delaying the purchasing of a term plan, hoping for a better deal is the most dangerous kind of procrastination!

 2. Cost is important!

 An obsession about price indicates a level of discomfort with concept of a term plan even from those who recognise the need to buy one. The same discomfiture may be observed when people who are offered health cover by their employers set out to buy their health insurance. Arguments about affordability do not work here. Term insurance is matter of life and death. It takes precedence above all else -including investing for financial goals (why?)

3. Claim settlement ratio is important!

Despite hundreds of examples of different modes of death all around us, most people refuse to take notice and pay undue importance to gross statistics. They refuse to understand that insurance of any kind is an individual product. Your nominee and the insurer will base their actions and decisions depending on how you die. No ratio would matter then!

4. Brand name and government backing are important!

Let us face it. The only reason, people purchased online term insurance from private players is because LICs policy was quite expensive. Had it costed the same, LIC would have stuffed its already overflowing coffers and invested it in equity!!

Somewhere deep down in the human psyche lies buried a sense of mistrust for private insurers. A mistrust that cannot be assuaged by even higher solvency ratio  of the privates compared to LIC!

5. Should LIC’s  12 Lakh odd agent force  be worried about e-terms potential popularity?

Well, I for one hope and think that e-terms popularity (assuming it does catch on!) will not dent sales of endowment and ULIP policies. The target crowds are different.

One is a computer savvy bunch who would like to get higher returns!    The other is a risk-averse crowd obsessed with X Y and Z bonuses offered by the corporation by investing in equity!!

For the well being of the economy, the e-term crowd should not increase at the cost of the endowment crowd. I don’t think it will. If India has one thing in plenty it is Homo sapiens!

6. Will mis-selling become a concern because of e-term?

In my opinion, mis-selling will become a concern (than it already is!) only if endowment sales take a hit. LIC agent Swapnil Kendhe differs with me. Here are a couple of his quotes from a thread the from Facebook group – Asan Ideas For Wealth (AIFW) It is Swapnil who broke the news about e-term at AIFW.

“With direct plans and online insurances increasingly becoming popular, this profession will surely die an honest death and live a dishonest life.(Subra's words) There is just not enough money for good talent to enter this profession. He will be left with no other choice but to sell high commission products. Even fee based or fee only financial planning profession does not offer very good monetary prospects. (There will always be exceptions though.)” "The system is promoting misselling by eliminating motivation to sell right products". Read Swapnil's latest post on this topic.

Indeed good food for thought! Would you agree?

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49 thoughts on “LIC online term insurance: Review of Human Behaviour!

  1. Ashal Jauhari

    Dear Pattu, as usual an interesting food for thought. What I think is - E-term of LIC 'll dent the sale of other online term plans from Pvt. insurers not within LIC itself.

    Thanks

    Ashal

    Reply
  2. Ashal Jauhari

    Dear Pattu, as usual an interesting food for thought. What I think is - E-term of LIC 'll dent the sale of other online term plans from Pvt. insurers not within LIC itself.

    Thanks

    Ashal

    Reply
    1. pattu

      Yes, if you can afford the premium. The point of this post is, take a term plan, any term plan asap and not wait for the most suitable one.

      Reply
    1. pattu

      Yes, if you can afford the premium. The point of this post is, take a term plan, any term plan asap and not wait for the most suitable one.

      Reply
  3. Pattabiraman Murari

    Thanks. Riders are not necessary at all. Accident insurance is very cheap as a stand-alone product and CI cover is not necessary my view. Having riders complicates the product as well as claim settlement.

    Reply
  4. Pattabiraman Murari

    Thanks. Riders are not necessary at all. Accident insurance is very cheap as a stand-alone product and CI cover is not necessary my view. Having riders complicates the product as well as claim settlement.

    Reply
  5. Bhaskar Jha

    Nice write up.Enjoyed reading.I think ulips and endowment plans will continue to be sold and at increasing rate with take home income of growing India increasing.

    Reply
  6. Bhaskar Jha

    Nice write up.Enjoyed reading.I think ulips and endowment plans will continue to be sold and at increasing rate with take home income of growing India increasing.

    Reply
  7. bharat shah

    yes , your message is clear that one should get insured at time of need with what is best available in market. there is no point in waiting for some perfect product (as per you!).

    Reply
  8. bharat shah

    yes , your message is clear that one should get insured at time of need with what is best available in market. there is no point in waiting for some perfect product (as per you!).

    Reply
    1. pattu

      Thank you sir. I will try and post this comparison in one my weekend roundup posts. Will be easier if online portals include this policy soon.

      Reply
    1. pattu

      Thank you sir. I will try and post this comparison in one my weekend roundup posts. Will be easier if online portals include this policy soon.

      Reply
    1. pattu

      Hi Viren, Thanks for the link. Yes people seem to think they won't get sick or die until they do!

      Reply
    1. pattu

      Hi Viren, Thanks for the link. Yes people seem to think they won't get sick or die until they do!

      Reply
  9. KISHAN

    On comparing the premium for myself (age 38) till age of 70 years between amulya jeevan 2 and e term for Rs 1 cr, I found that the premium for Amulya jeevan 2 is more than Rs 50K and same for e-term is Rs 32K. That is Rs 18K difference approx 35% lesser. Then why do we think that LIC is not giving benefit to 35+ people. Am I missing something??

    Reply
    1. pattu

      No you are not. The basic impression I got and so did Ashal was, that the difference between online and offline decreases with age. The main reason for this is young guys are more likely to buy online plans and they would be attracted by the cheaper price.

      Reply
  10. KISHAN

    On comparing the premium for myself (age 38) till age of 70 years between amulya jeevan 2 and e term for Rs 1 cr, I found that the premium for Amulya jeevan 2 is more than Rs 50K and same for e-term is Rs 32K. That is Rs 18K difference approx 35% lesser. Then why do we think that LIC is not giving benefit to 35+ people. Am I missing something??

    Reply
    1. pattu

      No you are not. The basic impression I got and so did Ashal was, that the difference between online and offline decreases with age. The main reason for this is young guys are more likely to buy online plans and they would be attracted by the cheaper price.

      Reply
  11. Guru Prasad Pandurengan

    Dear Sir, I have a basic question. Will term Insurance (Ex: LIC eTerm / SBI E-Shield) plan includes accidental death also (Ex: Bike Accident / Fire Accident etc except suicide)? (or) The benefits will be only if the death is natural?

    Please clarify.

    Thanks,
    Guru Prasad Pandurengan

    Reply
    1. pattu

      In the first year of the policy, suicide is not allowed. After that, all forms of death is covered, including accidental death.

      Reply
  12. Guru Prasad Pandurengan

    Dear Sir, I have a basic question. Will term Insurance (Ex: LIC eTerm / SBI E-Shield) plan includes accidental death also (Ex: Bike Accident / Fire Accident etc except suicide)? (or) The benefits will be only if the death is natural?

    Please clarify.

    Thanks,
    Guru Prasad Pandurengan

    Reply
    1. pattu

      In the first year of the policy, suicide is not allowed. After that, all forms of death is covered, including accidental death.

      Reply
  13. Prakash Praharaj

    Although i am advising to buy online term insurance(HDFC,SBI Life etc),the clients are facing difficulties in completing formalities.The internal resistance inside the company are making the experience customer unfriendly.

    Reply
  14. Prakash Praharaj

    Although i am advising to buy online term insurance(HDFC,SBI Life etc),the clients are facing difficulties in completing formalities.The internal resistance inside the company are making the experience customer unfriendly.

    Reply
  15. Prakash Praharaj

    Although i am advising to buy online term insurance(HDFC,SBI Life etc),the clients are facing difficulties in completing formalities.The internal resistance inside the company are making the experience customer unfriendly.

    Reply

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