This is the season when insurance selling reaches it higher pitches, the last quarter of the financial year. The season to project tax-planning for buying insurance and also the season for insurance companies and their sales network to chase down targets.
Watch out especially if it is your first year in employment. You are flush with money and good intentions of putting it to good use to secure your future, but have no clue yet about taxes or investing.
Your friendly neighbourhood insurance agent, usually a family friend or even a relative, has you in his sights!
No doubt you will be flooded with pesky phone calls, SMS messages, e-mails and ads popping up on whichever social media you frequent, badgering you to buy life insurance and health insurance. You may even feel a bit flattered by all the attention!
Is it a bad thing to buy insurance? NO! Far from it. It is a very good thing provided you buy the right policy and for the right purpose. The right policy here means right for you.
Without sounding very harsh, I have to say that most sellers will pitch you the right policy, the right policy for them. Which will add to their target premium collection and remuneration in the form of commission or brokerage.
Mis-selling has added to the general discontent with the concept of insurance not just in our country, but around the world and this is evidenced by regulations and laws aiming to limit it.
Misrepresenting a policy’s terms and conditions or cost during the sale process is mis-selling. You buy a product that does not suit you fully or partially, or it costs much more than it is made out to seem.
Single premium plans
Examples abound. In life insurance, regular premium policies are mis-sold as single premium policies. That is, you are led to think your premium is ₹50,000 one time, for a coverage of, say, ₹10 lakh.
Even basic internet searches will show you that this single premium can get you just about ₹3 lakh life coverage. Yet, people have signed on in a hurry – very like to avail the tax benefit in the fag end of the financial year – only to find that the next year there is a premium demand for ₹50,000 again and the obligation would be for the term of the policy, of about 15 years.
When the second premium becomes due, you either continue in the trap or abandon your policy to cut your losses.
Another, equally damaging misrepresentation is not explaining that a unit-linked policy, while it may have a (small) life cover component, is largely a market investment and the returns are dependent on the vagaries of the market. In other words, you think that the policy pays out a defined sum assured but that depends on the capital markets and the fund you choose.
What are the safeguards against being mis-sold to?
First ensure you are not ‘mis-buying.’ Never be railroaded into a quick decision under pressure, be it a tax deadline or just hard-sell. It is not unknown for the marketeers to appeal to your sense of a good deal or even greed and say that the policy will be withdrawn in a few days or that the premiums are going to be revised upwards and returns will drop.
Do your homework, ask questions and convince yourself that what you are paying for is what you will be getting.
As part of your proposal form you have to sign a declaration stating that you have read or have been explained the nature of the policy, coverage, terms and premium at the point of sale. So, please ensure that this is true when you sign.
If the deed is done and you are regretting it, you have 15 days from the date you receive the policy bond to return it and claim a refund.
Called the free-look period, it helps you undo a potentially disastrous financial mistake, one that will come back to haunt your loved ones you meant to protect.
In the next instalment of Cover Note we will see how to spot mis-selling in health insurance.
(The writer is a business journalist specialising in insurance & corporate history)