Can insurance policy buyers rely on direct-to-consumer plans?

direct-to-consumer or direct Insurance Plans are those types of insurance policies that you can buy directly from an insurer, usually online, without going to an agent or intermediary.

In direct insurance plans, policyholders can visit the website of the insurance company and do online transactions to purchase the desired product.

In this digital age, all insurance firms have created their portals to interact with potential buyers and regular customers. Buyers can directly deal with the firms when it comes to buying or claiming a plan. It thus eliminates the delay in the processes involved.

However, buying a policy through a third-party portal is not covered under direct insurance plans.

“Generally, the buying ratio of term plans is higher as compared to other products, while going straight. They are easily accessible and one can simply visit the website of the insurance company, type 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 the sum assured in case of death of the life insured.

We look at the pros and cons of direct insurance plans.

Advantages of Direct Plan

The direct-to-consumer plans of insurance policies are similar to the direct plans of mutual funds, where one can invest directly in the schemes without involving or routing the investment through a distributor or agent.

These mutual fund schemes have a low expense ratio, as there is no distributor or agent involved, and hence, there are savings in terms of distribution cost or commission.

Direct plans from insurance companies also give freedom to an individual to buy a plan as per their convenience and availability where no one follows them for documents or payments.

There are many advantages to buying a Direct plan such as convenience, speed and personalization.

“Buying a policy online is very convenient as people can sit from the comfort of their homes and buy the policy. They can also receive personalization, such as buying additional riders or adding personal accident cover. Lastly, one of the major benefits of buying a policy outright is that, in many cases, there is no medical examination,” Goyal said.

Direct plans also come with cost benefits. According to Abhishek Bondia, Managing Director and Chief 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 a direct plan as compared to the traditional way of buying a policy. In a life insurance plan, the difference between a traditional plan and a direct plan can be around 3% for the annual premium,” Bondia said.

According to experts, among life insurance policies, especially term insurance, direct plans are the most common.

Harm

Experts agree that one of the major attractions of buying insurance through a broker is that they can provide you with a wide variety of options.

From premium to exclusion and claim ratio, they can give various options to the policyholders before locking the policy. Brokers also work for the policyholders and not the insurance company.

Additionally, if you wish to make any changes to the policy, it may be easier to go through a broker than a direct plan.

There are many other benefits to buying through an agent or broker.

“First of all, they have multiple offers from different companies where the options increase for the customer, who can then take a calculated decision. Second, the agent or broker creates a trust factor as the company gets a face through an intermediary,” said Naval Goel, founder and chief executive officer, PolicyX.com, an online insurance marketplace.

Additionally, brokers and agents are very helpful at the time of claims as they provide complete assistance in collecting and submitting the correct documents on time.

One of the major issues with direct plans is that insurance is a complex product that requires little cooperation and guidance.

“In mutual funds, you look at 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 the price comparison, benefits and terms. If you go straight, often you are not made aware of the specifics,” Bondia said.

“Even if you have to pay an additional premium through the traditional way of buying insurance, I think it’s worth it,” he said.

Interestingly, direct insurance plans did not pick up pace in the past as customers generally did not want to buy insurance without understanding the product and comparing the price and features.

People should note that once you buy an insurance plan through an agent, you cannot migrate to the plan directly.

Which of these is better?

All the 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 which path to take.

“Both the procedures have their advantages. If a buyer has complete knowledge about the insurance company, its plan and is familiar with the process of claim or reimbursement then he/she can directly go for the purchase. And if a person is new to insurance and needs proper guidance, then the traditional procurement process is suitable for them,” Goyal said.