Why shopping for term and health insurance should be different

Term and health insurance are necessary and sufficient covers for most of the risks one can face. The time and effort invested in filtering the two different markets for the right product can be tedious. But this should not lead to a situation where one purchase (right fit or not) automatically dictates the effort invested in the purchase of the other. The approach to buying the two and the factors involved in their purchase can sometimes be vastly different.

Online Vs Offline

The availability of online aggregators to compare policies and premiums should be fully utilised in either term or health insurance selection. But in health insurance, especially for cases where specific risks are to be covered (pre-existing ailments, critical illness options, sub-limits for cataracts or organ transplants), human assistance can be beneficial compared to skimming the policy documents with an untrained eye. This assistance can be offered by aggregators, brokers, or insurer themselves but should be supplementary to information found in policy document. On the other hand, a general plain vanilla term insurance (with only death benefit) and simpler procedure (basic KYC and nominal pre-medical check-up) can be an online purchase, considering the 5-10 per cent discount for online purchase.

Core product focus Vs Add-on focus

While term insurance is fully served by its core function of covering death, add-ons significantly amplify the benefit in health insurance and hence should receive as much focus as the base product. Add-ons in term insurance range from inefficient (return of premium) to selectively useful (accident or terminal illnesss pay-out, child support) to efficient (cover for spouse). But in any case, premium cost for a given death benefit may be the primary consideration.

Health insurance add-ons can tackle coverage limits (restoration, NCB), PED waiting, wellness benefits, maternity, critical illness, OPD coverage, or international travel. Depending on one’s preference, focus on add-ons is as critical as base health insurance in drawing maximum benefit.

Timing the purchase

While the first term cover should be taken early. purchase of house or taking on a financial liability would be a good time to enhance the first term cover. Term insurance cover should ideally be predicated on the HLV or human life value (earnings over liabilities in a lifetime). Any significant change in HLV should be reflected in the term cover. It may be expensive though to buy a second term cover at 35-40 years.

Health insurance purchased at the earliest will allow PED waiting to be completed sooner and higher accumulation of NCB and restoration benefits. . Any changes in phase of life; marriage, location or children can be accommodated by notifying the insurer and enhancing the existing cover if required or by buying another top-up/super top-up policy. This will involve additional premium outgo. Also, keep in mind that premiums are linked to age and general inflation as well.

Insurer Interactions

Post purchase of term insurance, policyholder/nominee interaction with the insurer will be at an unfortunate event, occurring after uncertain amount of time after purchase. The policyholder should hence focus on the history of the insurer in determining if the future large payout can be honoured. Financial metrics like solvency ratios and claim ratio are predictors for only the next few years at best. Insurers backed by government or banks, or large conglomerates are critical factors in choosing term insurance.

Policyholder interaction with health insurer will most likely be at a higher frequency and smaller amounts (compared to term insurance). Service ability and claim processing speed, which are in turn better indicated by the breadth of the service offering across products, policies, policyholders, and segments can influence purchase consideration in health insurance.

Cost Vs function

For a given age and cover, a policyholder can witness a wider range of premiums (from high to low) in health insurance compared to term insurance. But ironically, cost (premiums for cover) should rank higher as a filter criterion in term insurance rather than in health insurance. As has been mentioned, term insurance, at heart, is an undifferentiated product. If the policyholder is convinced about the pedigree of the insurer and the few add-ons he/she chooses, cost can be the next filter.

Health insurance offering can tag many different add-ons, making cost comparison moot in the marketplace. The insurer with the right breadth of offering to cater to the specific conditions relevant to the policyholder must take precedence over cost comparison in health insurance.

In sum, Policyholders shopping for term insurance can prefer online mode with cost as a filter after zeroing on the right insurer with the right history. Health insurance can look for the right add-ons along with the core product and the breadth of every insurer’s offering by taking the help of an intermediary.

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