Should you opt for direct-to-consumer insurance plans?

Direct or direct insurance plans are the types of insurance policies that you can buy directly from an insurer, usually online, without going through an agent or middleman.

In direct insurance plans, policyholders can visit the insurance company’s website and transact online to purchase the intended product.

In the digital age, all insurance companies have built their portals to interact with potential buyers and regular customers. Buyers can deal directly with companies when it comes to buying a plan or making a claim. This eliminates the delay in the processes thus involved.

However, purchasing a policy through a third-party portal does not fall under direct insurance plans.

“In general, the proportion of purchases of term packages is higher than that of other products while being direct. They are easily accessible and one can go to the insurance company’s website, enter the correct details and get the policy almost instantly,” said Rakesh Goyal, director of Probus Insurance, an insurance brokerage. A term insurance scheme pays the sum insured in the event of the death of the insured.

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

Advantages of Direct Plans

Direct-to-consumer insurance policy plans are similar to mutual fund direct plans, where one can invest directly in plans, i.e. without involving or routing the investment through a distributor or agent.

These mutual fund plans have a lower expense ratio because there is no distributor or agent involved, and therefore there are savings in terms of distribution fees or commissions.

Insurance company direct plans also give the freedom to purchase a plan as per an individual’s convenience and availability where no one is running after them for documents or payments.

Buying direct plans has many advantages, such as convenience, speed, and customization.

“Buying a font online is very convenient because people can sit in the comfort of their own home and buy the font. They can also get customization, like buying additional runners or adding “personal accident coverage. Finally, one of the main advantages of buying the policy outright is that in many cases there are no medical tests,” Goyal said.

Direct plans also have cost advantages. According to Abhishek Bondia, Managing Director and Chief Executive of SecureNow.in, an insurance broker, insurers offer direct plans with no embedded commission.

“For this reason, 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 around 3% for annual bonuses,” Bondia said.

According to the expert, direct plans are the most common in life insurance policies, especially for term insurance.

The disadvantages

Experts believe that one of the main attractions of buying insurance through a broker is that they can give you a range of options.

From premiums to exclusion and loss ratio, they can offer policyholders various choices before locking in the policy. Even brokers work for the insured and not for the insurance company.

Also, if you want to make changes to the policy, going through a broker may be easier compared to a direct plan.

There are other multiple advantages to buying through an agent or broker.

“First of all, they have several offers from different companies where the options increase for the customer, who can then make a calculated decision. Second, the agent or broker creates a trust factor as the business gets known through an intermediary,” said Naval Goel, founder and CEO of PolicyX.com, a online insurance market.

Moreover, brokers and agents are very helpful at the time of claims as they provide full assistance in collecting and submitting the right documents on time.

A big problem with direct plans is that insurance tends to be a complicated product, requiring a bit of hands-on experience and guidance.

“In a mutual fund, you look at past performance. You have a baseline of your expected returns and program performance. The insurance conditions are not so easy to understand. An insurance customer should be informed about the comparison of prices, benefits and conditions. If you go straight there, you’re often not privy to the details,” Bondia said.

“Even if you are required to pay an additional premium in the traditional way of buying insurance, I think it is worth it,” he added.

Interestingly, direct insurance plans have not been successful in the past, as customers generally did not want to purchase insurance without understanding the product and comparing price and features.

People should keep in mind that once you purchase an insurance plan through an agent, you cannot migrate to a direct plan.

What is the best?

All insurance companies have the option of purchasing the insurance plan they offer through their website, where the process is simple.

Experts say it all depends on the risk-taking ability of the insured as to which route to take.

“Both processes have their advantages. If a buyer has complete knowledge of the insurance company, their plan, and is familiar with the claims or reimbursement process, then they can go for direct purchase. And if someone is new to insurance and needs proper guidance, the traditional buying process is fine for them,” Goel said.

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