Insurance policy: Buy from an agent or broker?

Today, a person can buy an insurance policy from agents, insurance brokers, upcoming financial supermarkets such as Reliance Money, Religare and Indiainfoline, or from banks. Of so many routes, which one do you take? The right answer can be found after considering the pros and cons of each option. 

The measuring scale
Agents. Around 80-90 per cent life insurance policies are sold through an estimated 1.1 million agents. This gives both customers and insurance companies access like no other channel. However, easy access gets counterbalanced by other problems. You could be hardsold a policy you don't need. For instance, you can be advised to buy a unit-linked insurance plan (Ulip) instead of a term plan simply because the former is more rewarding for the agent. You may even be encouraged to exit your existing Ulip mid-way to invest in a new policy. This makes you completely lose out on the long-term gains of a Ulip. (See How Long Will You Munch It? page 34). 

An agent is supposed to provide service and financial advice during the tenure of the policy as he gets commissions throughout the tenure. But, this is rare. The agent typically remembers you only when the premium is due and, in many cases, not even that, as he might have quit the company. "In India, I have only seen people selling policies and not providing advice to the customer," says Pier-Paolo Dipaola, deputy CEO, SBI Life Insurance.

Brokers. They have an advantage over agents. "The agent represents the insurer for which he sells policies, while brokers are independent operators representing all insurers," says N. Raveendran, managing director, Alegion Insurance Services. Brokers offer a range of insurance products. While the quality of advice is likely to be more objective than an agent's, much depends on how well brokers match your needs with available products. 

One-stop shops such as Reliance Money, Religare and Indiainfoline are taking quality and convenience further by providing other products such as mutual funds and loans along with insurance. With many of them planning to expand nationwide, access may not be a major issue.

Bancassurance. While buying insurance from banks gives you the convenience and assurance of buying a product from an institution with whom you have an existing relationship, your choice is restricted to the insurance company with which the bank has tied up. The limited choice also exposes you to the risk of motivated selling in case of insurance-cum-investment products. Recently, there has been significant rise in the number of complaints of mis-selling through banks.

What Do You Do? 
When choosing whom to buy from, cost can't be an issue as, according to the rules of the Insurance Regulatory and Development Authority (Irda), premiums have to be the same across channels. So, ease of access, convenience and quality of investment advice become important. If you don't know an agent, but have a good relationship with your bank, you can buy simple products such as term or endowment plans from it. For more complex products such as Ulips, for which you need objective and quality advice, brokers and financial supershops may be better, unless you have access to high-quality advice from your bank. "Ask yourself whether the person selling the policy is earning his commission by giving advice and charging for it, or is just being an intermediary," says Gaurav Mashruwala, a Mumbai-based financial planner. You also need to know the grievance redressal mechanism for each route. So, weigh the options before deciding whom to buy your policy from.