Buying an insurance product in the 1990s, and even now in many places, was and is as simple as this: Your friendly neighbourhood agent of Life Insurance Corporation of India (LIC) comes and explains the benefits of buying a particular plan over a cup of tea or coffee, takes the cheque and the policy document is delivered within weeks. And, every year, he comes back to collect the premium cheque, ensuring the policy does not lapse.
Things have changed quite dramatically in the past decade, especially in major cities. Beside the entry of private players, the kind of products and methods of buying have changed. An example: The introduction of unit-linked insurance plans, an investment-cum-insurance plan that is not recommended by most financial planners, means returns on insurance policies are no longer four-six per cent annually but are significantly more when stock markets are rising. And, can be equally risky when the markets are falling, and even wipe out the principal, as high commissions are paid to agents. So, some serious advice is required if you are into such complex products. Also, with the advent of online term plans with high sum assured of Rs 1 crore or more, policyholders can now have one or two big life policies, instead of accumulating many to reach a high sum assured.
Due to these changes, a number of new channels have emerged. Broadly, the various distribution channels can be classified into (a) direct- through the insurance company staff or the company's website, (b) representatives of the insurance company-agents, corporate agents like banks, or independent marketing firms (c) independent players - brokers and online aggregators. What differentiates these?
Insurance agent: He/she only sells products of the insurance company he/she is associated with and, hence, is more like a representative of the insurer. And, like all representatives of a single company, expect personalised services with regard to premium payment or settlement of claims but you might not get unbiased advice. However, the Insurance Regulatory and Dwevelopment Authority of India (Irdai) stress on need-based selling has addressed this risk to some extent.
They might be handy for someone looking for a market-linked product like a unit-linked insurance plan (Ulip). A face-to-face interaction with the agent helps understand returns in different scenarios like a debt-light, equity-heavy option or vice versa. "In the case of long-term life insurance products, customers should spend time with the agent to understand what the policy is going to fulfil, how it is a part of their overall financial planning and the duration for which they need to pay the premia," says Sanjay Tripathy, senior executive vice-president at HDFC Life Insurance.
Bank or corporate agent: Rushabh Gandhi, director, sales and marketing, IndiaFirst Life Insurance, believes the bank manager from the neighbourhood branch is emerging as a preferred choice for many policies. This is because there is a high level of trust with the manager of the branch where you already have put your savings in. The advantage is convenience. Since the buyer already has a relationship with the bank, such as a savings bank account or fixed deposits or loan, it is convenient to buy insurance, too, from the same branch.
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