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
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?