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Why Does An Online Term Insurance Plan Premium Differ Between Companies?


wealthymattersWith an ever increasing awareness about term insurance policies, there is a lot for a person to choose and gain from.Insurance companies are  making it much easier for people to purchase term policies. One such initiative is online term insurance that allows you to seek life cover from the comfort of home, a fuss free way to buy insurance!

Statistically, one online term plan is bought every five minutes in India. The number of customers buying online term policies have risen from 500 to 15000 per month. However, there is still great concern among buyers as to why the premium of online term insurance plans  differ from one company to another. Here are the reasons:

Mortality Charge

Insurance companies use a mortality table which indicates the rate of deaths occurring in a defined population during a selected time interval, or survival from birth to any given age. They refer to this table to tabulate the premiums for various insurance plans across regions and genders of policy buyers. Now, the difference lies in the version of mortality table used by a particular insurance company. So, there is a difference of 5-10% in the cost of premium between 1994-96 version and the more recent one 2006-08. Hence, when you buy an online term insurance plan, try to find out which mortality table is being used by the insurance provider .

Cost of Sale

Online term insurance is cheaper because the role of agent or the middle man is eliminated. However, the insurance companies still have to incur certain direct and indirect expenses which may bring a difference in their premium.

Economy of Scale

A a larger insurance company can give you lower premiums. How? Because their large client base covers them adequately. The expenses, particularly the indirect ones are spread across and apportioned on a larger number of policies which enables them to pass on this benefit to the policyholders.

Competition Speaks

There is a tendency of competition to pull the prices down most of the time. If an insurance company decides to lower the premium amount to garner more clients, then in most of the cases other companies will follow  suit. However, not all of them will be able to do so because of the financial implications of such a decision. This also leads to heavy discounts on premiums across insurance companies.

The Plan Itself

The premium of a term insurance plan may also vary because of the difference in features, benefits, riders, terms and conditions of the plans offered by different companies. So, it is advisable to study and compare all these parameters to know why the premium of one insurance company is so different from another.

Historical facts and figures

For any insurance company deciding on the premium amount works almost similarly to any other product manufacturer. If a company has suffered heavy claims on their term plans in the recent past then the premium on future term products would be higher as compared to those insurance companies who have had fewer claims.

Internal Policies

All companies work by a rule book and a gamut of internal policies that determine their working, processes and products. In case of term insurance policies too, the premium is arrived at by general guidelines provided by the company’s internal policies. They would discount premium according to age, health, earnings and potential earnings of a person. The percentage of this discounting factor would be different from company to company. So say, one company may give a benefit of Rs. 50 to a person in his early 20’s and reduce it by Rs. 10 for every five years added. Whereas another company might attach a benefit of Rs. 40 only and reduce it by Rs. 7 for every five years added to the age. This simple equation will make the premium amount differ drastically.

Today, almost every private insurer like ICICI Prudential offers online term plans. It is recommended that when you buy a term insurance plan, read in between the lines and beyond the amount of premium. A low premium may look attractive but ride on a hoard of conditions. It is always better to understand the terms and see which plan serves your purpose and interest well.

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About Keerthika Singaravel
Engineer,Investor,Businessperson

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