Submitting incorrect information in form
Just because there's no agent to oversee the filling up of the form, do not submit incorrect information. The insurance company can reject a claim if it discovers that certain key facts are wrong or have been deliberately hidden by the policyholder. The main objective of the policy would go up in thin air if a claim is rejected. If a close relative has suffered from any of the specified ailments (diabetes, heart problem, hypertension), say so in the form. If you are a heavy smoker, don't categorise yourself as a casual smoker. This would be tantamount to suppression of a key fact. Keep in mind that the nicotine levels can show up in your blood tests.
"Also, medical tests vary widely from company to company. Some may be lenient, while others could be very strict. It is important that you disclose the facts because later your dependants will have a tough time handling the claim. As it is an online policy, they won't have any agent to argue their case," says Jayant Pai, vice-president, Parag Parikh Financial Advisory Services.
How you can avoid it: Obtain all information about your family's medical history before you fill up the form. Disclose all facts about your social habits and lifestyle.
Not comparing all the available options
Unlike other, more complex and sophisticated insurance products, a term plan is a commodity. By and large, its features do not vary across insurers and it all boils down to the lowest premium. However, zeroing in on the cheapest plan is possible only if you have done adequate window shopping and compared the premiums of all the 8-9 companies that offer online term plans. Some buyers believe that a certain company with a higher claims ratio is a better option, but this may not be true. "Comparing term plans is not difficult as most policies have the same features, but it becomes difficult with health policies, as you need to dig out more information, such as hospital network and exclusion clauses," says Deepak Yohannan, CEO, MyInsuranceClub.com.
How you can avoid it: Evaluate and compare plans before you buy. Use an aggregator site to go through the premiums of other plans.
Buying too big a cover for too long a term
Ironically, the biggest advantage of online policies may also prove to be a drawback. The low premium may entice you into taking a cover that is bigger than what you need. "Do not buy a big cover just because the premium is low. Do so only if you need it," says Gopal Kumar, principal consultant, Allons Insurance Research. You may need a Rs 1 crore cover that costs Rs 12,500 a year, but since a `2 crore cover can be bought for an additional payment of Rs 5,000, you jump at the offer. "It may seem like a good deal, but if you do not require that much insurance, you are actually wasting Rs 5,000," explains Pai.
The other problem is that you may take a cover for a tenure that extends well after you stop earning. Some companies offer covers till the age of 75. However, there is no compulsion to pick one that lasts longer than your earning years.
How to avoid it: Though low premium may seem attractive, it should not be the guiding factor while buying a policy. Once you decide that you need a certain level of cover, look for the options that are available online as well as offline. Depending on your affordability, choose plans that offer suitable premiums. "Assess your need and asset-liability situation while buying insurance," says Kumar.
Opting for too short a tenure or low insurance cover
The flip side of the above mistake is taking too small a cover or doing so for too short a term. A life cover of Rs 50 lakh might seem enough right now, but even 6% nominal inflation will reduce its value to about Rs 28 lakh in 10 years. Buy a cover that is big enough to take inflation into account. The bigger mistake is buying a cover for a short tenure. A policy that ends when you are in your 40s is a big waste of money. You are effectively insuring yourself during the low-risk years, but when the risks and liabilities are at a peak, you are without cover. Buying a fresh cover at that age will cost a bomb. What's more, you could be denied insurance if you have developed a medical condition.
Vijay Rana | CMD & Co-Founder | vijay@lpcurry.com|
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