From Mint
Here are a few ways
to protect yourself from being sold an inappropriate life insurance policy..
A television
commercial by a leading insurance firm shows a financial adviser being hounded
by a devil-like creature who disappears when the adviser continues to give the
right advice to the prospective client & not cut corners.
A couple of years
back, another leading insurer had launched a campaign explaining the importance
of paying attention to the basics before buying a life insurance product.
There is enough
anecdotal evidence to suggest life insurance is often mis-sold.
In fact, the industry
now accepts this and the sector regulator has instituted reforms to control the
menace.
The efforts have
certainly improved sales practices but not completely plugged the hole.
What can you as an
individual do to protect yourself..?
How do you spot the
devil in the detail..?
Here are a few simple
ways to spot mis-selling...
Hear the opening
pitch
Life insurance is a
long-term product because you need insurance for the most part of your working
life. Even as an investment product, it works only if held for a long term
because of the embedded costs.
However, it is more
difficult to sell a long-term product, so, to make their jobs easy, agents often
approach you with a short-term insurance plan.
If the words
‘short-term’ & ‘insurance’ come in the first few sentences that an
over-eager insurance agent mutters, run. Mr. Rahul Aggarwal, CEO, Optima
Insurance Brokers Pvt. Ltd, said, “If your agent says ‘I have a good short-term
savings product of 3 to 5 years’ and gives you details of an insurance product,
you should stay away from that agent because life insurance is not a product
meant to give short-term benefits.”
The main purpose of
life insurance is to protect your family & assets financially in case of
unforeseen events.
Another example is
when insurance is bundled with other financial products or passed off as a
freebie. For instance, you take a home loan and instead of buying a pure term insurance,
which you must buy to protect your dependants from having to repay the loan
amount should you die, you are sold an insurance plan with returns. Or, say,
you are visiting your bank to open a Public Provident Fund account or a
recurring deposit account and the bank employee directs you to an individual
who offers a product that gives similar or better returns and insurance as
bonus.
This, again, is a red
flag, as Insurance is not a by-product of investing.
See standard
illustration..
When you sit down to
understand the calculation for a traditional plan or / a unit-linked insurance
plan (ULIP), if the agent gives you a handwritten calculation instead of the
insurance company’s standard illustration of the calculation for the life
insurance product, alarm bells should ring.
“An agent or /
distributor who wants to sell the product for his / her own benefit will show
his / her own calculations where the predicted returns will generally be in
double digits. This is definitely not the right way to portray the benefits.
So, ask for the firm illustration of the calculation,” said Mr. Kapil Mehta,
MD, SecureNow Insurance Broker Pvt. Ltd. The agent should have this information
readily available. Or, you could check it on the life insurance company’s website.
Fill the form
yourself..
When you get a job
offer, do you sign the contract without reading all the details? Of course not.
So why would you sign insurance documents without reading them first? “Most
insurance agents who want to push an insurance product will offer to fill the
form for you. You will only be asked to sign at the relevant places. This is
not the right practice,” said Mehta.
By reading all the
details and filling the form yourself, you will be able to understand all the
details of the policy—what’s included, what’s not, surrender value, grace
period, and much else. You can also get any doubts clarified. Even if the
exercise is difficult, it helps you fully understand the product and minimize
chances of error such as in name, age, address, nominees and more.
Check the product
name
Every insurance
company sells multiple policies—term plans, unit-linked insurance plans or
traditional plan. Under each category there will be products with slight
variations. “It can happen that the agent contacts you for a particular product
but ends up selling another. For instance, you get a call for an insurance
policy while you are taking a home loan, but instead of selling you a policy
customized for loan products, the agent sells you a traditional policy,” said
Mehta. Hence, ensure you check the product name while filling the documents.
Also, beware of
agents who ask you to not bother about the medical details required in the
form. “They do this because if there is a medical issue, the company will have
follow-up questions. The agent wants to avoid this as she is not bothered about
the claim part. What matters to her is sales,” said Aggarwal.
Wait for insurer to
call
As a part of best
practices adopted, most life insurance companies will make a call after the
agent has explained the product and you have paid the first cheque. The
insurers make this call to ensure that you have understood the terms and
benefits of the policy correctly. If you realise at this point that you didn’t
buy what your were explained, you can return the policy. “Whenever an agent or
a distributor sells you an insurance product, you should get a direct call from
the company. If you don’t, something is not right there,” said Mehta.
There have also been
cases of imposters calling up on behalf of the Insurance Regulatory and
Development Authority (IRDA) and offering to help policyholders exit a life
insurance policy and invest the money in better investment products. Irda does
not call individual customers offering to help them exit plans.
A lot of the hard
sales push in insurance draws upon the basic human emotions of fear and greed.
The minute you feel that the agent or distributor—who may well be a friend, a
family friend or a neighbour—is talking of very high returns with very little
risk, stay away. Avoid too-good-to-be-true products. If you still want to buy
it, don’t sign on the documents right away. Instead, ask for the policy
brochure and go through it carefully.
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