Buy pure insurance cover online to save at least 5% on paying commissions

Use offline channels when buying insurance-cum-investment products, as they are more complex and the fine print needs to be understood

The bulk of life insurance sale in India still occurs through face-to-face interaction. A recent report by PwC and the Confederation of Indian Industry (CII) says that face-to-face distribution channels account for 99 per cent of sale by premium, and only 1 per cent comes from web aggregators or online channels. However, the online channel has become an important medium for the sale of term insurance, where, according to industry sources, it enjoys a 25 per cent share. Customers need to understand the pros and cons of offline and online channels before they decide where to make their purchase from. 

Selling to reluctant buyers: Agents are needed to pursue reluctant customers and get them to purchase a product that is not high on their priority list. "Most customers do not want to address questions about whether they have provided adequately for premature death, retirement needs, and so on. It takes a lot of persuasion to get people to buy life insurance," says Nagpur-based Bharat Parekh, one of the country's leading agents. 

Another advantage of the offline channel is that meeting the agent in person creates a sense of trust in the customer. “Once a customer is able to put a face to a name, he feels more confident that if he has a query or problem, there will be someone available to handle it,” says Rushabh Gandhi, deputy chief executive officer, IndiaFirst Life Insurance.  

Buying through face-to-face channels also allows the seller to gauge the customer’s needs better. “In case of long-term life insurance products which need comprehensive financial planning, there is a need to carry out a consultative discussion,” says Joydeep K Roy, partner and leader India insurance practice and global leader for insurance digital assets, PwC.   

Purchasing a plain-vanilla term cover is a relatively simple task. But buying an insurance-cum-investment product like a unit linked insurance plan (Ulips) or a traditional plan (of which there are two variants—participating and non-participating) is more complicated. Customers have many queries about the rate of return, nature of product (market or non-market linked, guaranteed or non-guaranteed returns), and so on. Since the bulk of sales in India is of such insurance-cum-investment products, consultative selling becomes critical. Offline channels are better equipped to handle this. 

Bane of mis-selling: The biggest risk of buying offline is mis-selling. It happens primarily because of mis-aligned incentives. An agent or relationship manager at a bank could sell you a product even though it does not suit your needs because it offers him a higher commission. Mis-selling also happens because the agent or seller’s own level of financial knowledge is inadequate. 

Low-cost advantage: Cost-saving is a key benefit of purchasing insurance online. “For most term products, the offline variant is more expensive than the online variant by at least 5 per cent (see table). And remember that the higher premium has to be paid for the entire life of the product,” says Santosh Agarwal, chief business officer, life insurance, Policybazaar.com. The cost difference arises due to the commissions that have to be paid to intermediaries in offline channels. 

Due to the cost factor, many low-cost products are not likely to be available through offline channels. “Take the example of a low-cost Ulip like HDFC Life Click2Wealth. The margins on it are so low that it may not be viable for offline channels to distribute it. You are more likely to find this product available for sale online,” says Agarwal. 

Companies focused on online selling also work hard to simplify the purchase process. “We try to ensure that the customer has to give us the least amount of data, or that he doesn't have to undergo a medical check-up," says Vineet Arora, managing director and chief executive officer, Aegon Life Insurance. The company has a proprietary risk scoring model which it uses to waive the health check-up requirement for certain customers.

Disclosure quality is also better online as the customer fills up the form himself. In offline sales, often the agent fills up the proposal form. He may not divulge information that he thinks could lead to turning down of the proposal by the insurer. But such non-divulgence can cost customers dearly at the time of claim, as it can get rejected. 

Stick to professionals of long standing: Irrespective of whether you buy offline or online, use the internet to learn about the product you need and to compare products from different companies. Any promise of abnormally high returns by the agent should raise a red flag. Parekh suggests sticking to agents who have been operating for long and about whom you have received good feedback. 

Consider going with brokers. Agents represent one company and hence have no choice but to sell those products only. A broker, on the other hand, sells the products of many companies and hence is not likely to be biased towards any one of them.    

Insurers have put centralised checks and balances in place to curb mis-selling. They make a pre-issuance validation call during which the essential features of the policy,  including policy-payment term, are explained. “Attend to this call properly. Ensure that what is being told to you is not different from what the agent has promised,” says Gandhi. 

When you get the policy document, go through it carefully. A copy of the proposal form is also provided. Check it too. If any incorrect information has been filled, contact the insurer and get it rectified. If the policy issued to you is not what you expected it to be, cancel it within the free-look period of 15 days.