It is often believed that ‘prevention is better than cure’ to lead a healthy life. Such a practice may also be true to one’s healthy investment portfolio. The financial services sector in India, especially life insurance industry, has witnessed fast-paced developments both in terms of delivering better customer service and creating suitable regulatory environment only to cater its benefits to more people. However, apart from other challenges, mis-selling continues to be major hindrance to the growth of this sector since the enduser loses trust in the end.
Take the case of life insurance industry alone. Between 2004-05 and 2011-12, according to a report by Indira Gandhi Institute of Development Research, Mumbai published in April, 2013, investors lost an estimated $28 billion due to mis-selling of insurance policies.
During the last one-and-a-half decade, mis-selling has impacted businesses of life insurers substantially. As we recollect the stories, analyses on the financial services sector point out ‘doubling one’s money in three years’ was a common trick for mis-selling a market-linked life insurance plan. Either the plan was sold by an insurance agent or a bank official under the bancassurance model. They would sell a ULIP (which had a three-year lock-in before September 2010) stating that the premium amount invested would double in three years, without clarifying the costs or charges involved to the customer. In most cases, the reason was seen as high commission payout to the agents in the initial years of plan. Therefore, for obvious reasons, more surrenders impacted the persistency of life insurers too. The new regulatory guidelines on ULIPs since 2010 brought in capping in commission and charges to contain mis-selling and make the plans more customer friendly.
Notwithstanding the measures taken by the industry, we continue to hear stories of mis-selling!
An appeal to all life insurance customers and policyholders:
How about creating an immunity against mis-selling? Though an ideal situation of zero mis-selling in the financial services sector may take years, we can start by saying “NO” to forcible selling or those promising unrealistic return on unit-linked insurance plans or any other endowment plans. Let’s point out four major practices one should follow to become immune to mis-selling of life insurance products or any other financial products.
1.Never get carried away by assurances of unrealistic return -It is often heard in the newspaper reports that people are duped after promising much higher returns than the industry can provide or the economy permits. So, a thumb rule is: never get carried away by assurance of unrealistic returns in a short span of time. Today, all insurers or other financial service providers give a detailed benefit illustration on a particular plan at a specified rate of return. Analyze such illustrations carefully or take help from an expert to understand it considering the current market scenario.
2.Cross-check with your financial planner or your nearest expert – The primary rule for any investment would be to cross-check with the nearest expert in your circle. Your financial planner or the expert on this subject, may be somebody in your family or an acquaintance, who can help you understand the intricacies of any plan you have been pitched. Be honest to yourself and discuss the benefits and implications of the plan clearly with the expert to compare the same in the market and know your financial suitability.
3.Don’t take the final call without reading all the documents – No matter how close your relationship is with your agent, bank representative or broker, it is a ground rule to check the initial product or plan documents and know the future complications! You can only sign on any document without reading or verifying it at your risk. Prospective buyers, in a hurry to close necessary income tax planning, are often lured to products that may not match their financial goals. Later, the frustrated lot discontinue regular investment and loses out on the benefit that can be had only on a long-term basis. Therefore, check your future needs and ability to make regular investments on a long-term basis before finalizing on an investment. Your agent’s “money-doubling” mantra can only land you in trouble and result in distrust.
4.Know the costs, nothing can be hidden – There are various types of costs or charges for any financial plan or market-linked insurance plan you buy. It may vary from advisory charge to fund management charge cost or mortality charge in case of life insurance cum investment). Calculate these costs before you arrive at an estimated return after a certain years. More importantly, know all the possible costs a financial plan can have and make a comparison.
At Bajaj Allianz Life, for instance, we have taken certain measures to educate our customers regarding the policies they have bought and the benefits it offers. Our policy document has been enriched with the following details:
- Key Feature Document – Our policy kit contains a Key Feature Document which educates the Customer about the benefits under the policy, bonuses if any, premium payment schedule, policy revival, surrender and policy termination clause, free look cancellation norms and our contact details.
- Info-graphic – The Policy Highlights as an info graphic representation of a productThis image-based representation further assists as a point-of-sale document and is a part of the Policy Document sent to our customers.
- Benefit Illustration – Our Policy Document also contains a copy of the signed Benefit Illustration which highlights the Sum Assured, policy term , premium payable & mode chosen, details of the customer and Investment return scenarios at 4% and 8% as regulated by the IRDAI.
Stay safe, invest wisely & ensure protection for your family members.