Should you go for direct-to-consumer insurance plans?
Premium- Direct insurance allows you to buy a policy from the insurer without the intervention of an intermediary
Traditionally, buying an insurance policy involves various steps such as visiting an insurance agent, submitting the required documents and then waiting for the paperwork to be processed. But now, all this is mostly done online and processed faster. So, in the last few years, there has been an immense growth in the policies sold through online platforms.
Direct-to-consumer or direct insurance plans are those types of insurance policies that you can buy directly from an insurer, typically online, without visiting any agent or intermediary.
In direct insurance plans, policyholders can visit the website of the insurance company and transact online to buy the intended product.
In this digital era, all insurance firms have built their portals to interact with potential buyers and regular customers . Buyers can deal with the firms directly when it comes to buying a plan or raising a claim. This eliminates the delay in the processes so involved.
However, buying a policy through a third-party portal doesn’t come under direct insurance plans.
“Typically, the proportion of buying term plans is higher, compared to other products while going direct. They are easily accessible and one can go to the website of the insurance company, tupe in the correct details, and get the policy almost instantly," said Rakesh Goyal, director, Probus Insurance, an insurance broking company. A term insurance plan pays out the sum assured in case of the insured’s death.
We look at the pros and cons of direct insurance plans.
Advantages of direct plans
Direct-to-consumer plans of insurance policies bear resemblance to direct plans of the mutual funds, where one can invest in schemes directly, i.e., without involving or routing the investment through any distributor or an agent.
These mutual fund plans have a lower expense ratio, as there is no distributor or agent involved, and hence, there are savings in terms of distribution cost or commissions.
Direct plans of insurance companies also give the freedom to buy a plan according to an individual’s convenience and availability where there is no one running after them for documents or payments.
There are multiple benefits of buying direct plans such as convenience, speed, and personalization.
“Purchasing an online policy is very convenient as people can sit in the comfort of their homes and buy the policy. They can get personalization too, like buying additional riders or adding personal accident cover. Finally, one of the major advantages of buying the policy directly is that, in many cases, there are no medical tests," said Goyal.
The direct plans come with cost benefits too. According to Abhishek Bondia, managing director and principal officer, SecureNow.in, an insurance broker, insurers are coming up with direct plans where there is no built-in commission.
“Because of this, the premium can be cheaper in direct plans compared to the traditional way of buying a policy. In a life insurance plan, the difference between a traditional plan and the direct plan can be about 3% for yearly premiums," said Bondia.
As per the expert, direct plans are most common in life insurance policies, especially for term insurance.
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The disadvantages
Experts believe that one of the major attractions of buying insurance through a broker is that they can offer you an array of options.
From premiums to exclusion and claims ratio, they can give policyholders various choices before locking in on the policy. Even brokers work for the policyholders and not the insurance company.
Additionally, if you want to make any changes in the policy, going through a broker can be easier compared with a direct plan.
There are other multiple benefits of buying through an agent or a broker.
“First, they have multiple offers from different companies where the options increase for the customer, who can then make a calculated decision. Second, the agent or broker builds a trust factor as the company gets a face through an intermediatory," said Naval Goel, founder and chief executive officer, PolicyX.com, an online insurance marketplace.
Additionally, brokers and agents are quite helpful at the time of claims as they provide complete assistance in collecting and submitting the right documents on time.
A big issue with direct plans is that insurance tends to be a complicated product, which requires a little bit of handholding and guidance.
“In a mutual fund, you look at the past returns. You have a benchmark of what your expected returns are and how the scheme has performed. Insurance terms and conditions are not so straightforward to understand. An insurance customer needs to be informed about price comparison, benefits and conditions. If you go directly, then often you are not made aware of the nitty-gritty," said Bondia.
“Even if you are required to pay an extra premium in the traditional way of buying insurance, I think it is well worth it," he added.
Interestingly, direct insurance plans did not pick up in the past because customers usually didn’t want to buy insurance without understanding the product and doing a comparison of price and features.
People should keep in mind that once you buy an insurance plan through an agent, you cannot migrate to a direct plan.
Which one is better?
All insurance companies have the facility to buy the insurance plan offered by them through their website where the process is straightforward.
Experts say that it completely depends on the risk-taking ability of the policyholder as to which route to take.
“Both processes have their benefits. If a buyer has complete knowledge about the insurance company, its plan and is acquainted with the process of raising claim or reimbursement then he/she can go for the direct purchase. And if a person is new to insurance and needs proper guidance then the traditional buying process is suitable for them," said Goel.
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