Should You Buy Term Insurance from LIC of India or Private Insurance Companies?

One of questions often asked by clients while buying term insurance is- Can I trust private insurance companies or should I stick to government providers like LIC of India, SBI Life etc.?

LIC of India has been the pioneer in the insurance sector and for many people in India life insurance means LIC. It has built a name for itself by being in the market for so many years. Also if you look at their IRDA claim settlement ratio and customer service, it is above average. If that is the case- why should I look anywhere else?

The answer lies in term insurance premiums. LIC of India actually did a disservice when its agents promoted insurance as an investment product. So when private insurance companies in India entered the fray, they too copied the LIC model and their agents did huge mis-selling of insurance products. Today when I talk to insurance executives, they are just not able to sell new insurance. At the same time, many private insurance companies are using technology to offer low cost insurance products to the people. If you compare the costs, the costs of these online policies are almost half that of offline policies offered by the government owned insurance companies. The answer lies in commission. Most of the agents earn 70-75% commissions on “endowment” or “investment ” products while commissions for term insurance policies are less than 20%. Hence,the companies are able to pass on these cost benefits directly to the consumers.

As far as reputation goes, companies like HDFC Life, ICICIPru Life, Kotak Life or Aviva Life are reputed companies in their own right. They were responsible for damaging their brands in the past but now are making amends by offering superior products ( just like what they did in banking). Many people ask me- What will happen if a company goes down under? I think you are well protected in this case because IRDA has put very stringent solvency requirements on insurance companies.

In my opinion, one should compare these simple things while buying a “term insurance plan” (rather than go by old perceptions)

  • Available coverage
  • Price
  • Customer Service
  • Claims Settlement Ratio

Don’t get too hung up on buying from the government players only. Once the private players are allowed to have 49% FDI, you will see even better service from the industry.

We are currently seeing a lot of demand for private insurance products as they are very affordable. Also in terms of claims, their processes are very streamlined provided the insured person has provided correct information at the time of buying the insurance. What is our opinion/experience on this topic?

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