While those of you who are wondering what does F.D have to do with, life insurance Beware you could be a victim of it.
As it happened with Mr. Mangesh Pai who went to the largest private sector bank to rollover his F.D maturity into another F.D; he landed up rolling over his maturity amount into a, life insurance policy instead. He was told by a bank officer that this would be like a F.D with life, insurance , cover and 10% interest minimum. Mr. Mangesh found it attractive and signed the papers.
Being a busy heart surgeon, he didn’t get time to go through the papers he got after few days until to his surprise he got notice from insurance company intimating payment for renewal premium after a year. He started wondering when did he buy this company’s insurance policy, that too with such a huge premiu (his F.D maturity was huge). While digging through all his financial papers in his file, he found that he was cheated and been sold a life insurance policy instead of F.D which he wanted. Moreover the policy has annual premium paying term of 20 years. He further found out that it was a ULIP with 35% charges and very low life cover. He has filed complaint with RBI and is fighting against the bank.
With thirst of earning huge commissions, bank hire people mostly young who have inadequate knowledge and experience on insurance. These people with tag of Financial Advisor or Relationship Officer are given targets and incentives. On the verge of achieving those targets and earning incentives, they tend to mis-sell in a big way. Same is the case with Relationship Managers of most broking firms. They are trained for aggressive sales and thus have only one thing in mind sell insurance to anyone anyhow and achieve targets. The ultimate losers? Consumers. Beware
In another case, Mrs. Priya Arora got call from a MNC bank where she holds a credit card . Despite showing no interest in an insurance product being pitched to her, she found insurance premium being debited in her credit card bill. Mr. Ahmed who went to a public sector bank for opening a savings a/c was asked to take an insurance policy. You need to take this product along with a/c opening, said an officer at the bank.
While the advent of private life insurance companies have definitely increased insurance penetration in India which is still very low, it has also definitely increased mis-selling of insurance products. With increasing number of insurance companies so are increasing number is insurance agents.
Companies are hiring agents very aggressively to boost sales as a result of which you will find many college students, housewives, doctors, teachers, and people with part time jobs as insurance agents who sells insurance part time merely to earn some extra buck. These people lack knowledge, skills and experience; result of which wrong product being sold or mis-selling. Insurance agents merely push the product which is earning them higher commission irrespective of weather such product meets your needs and requirements or not. As is happened with Mr. Kamlesh the only earning member in the family who ended up paying 70000 p.a merely for 5 lakh of insurance cover, most of them are ULIPs with high charges. Being bread earner of the family he should have been given much higher life insurance coverage at a lower premium.
Most of the agents typically are trained on only two or three ULIP products and they sell only those products. If you ask such agents about an endowment or term plans most of them don’t know much about it and they will try to convince you that this or that ULIP product is better, that it has given 30% returns in last 5 years.
It is recommendable to avoid buying insurance from part time agents primarily because you may be victim of the wrong product which may not meet your needs, you would suffer from bad service from the agent and secondarily this is their part time work, they would be out of it anytime and then you would be all lost.
So shouldn’t we buy insurance at all? If we have to, where do we get it from?
While life insurance cover is one of the most important things to have for an earning member of the family, we need to determine goals, requirements and how much insurance do we need. Typically, when we think of buying insurance we ourselves don’t know how much cover we should take. Most of us decide it on the premium. We opt of whatever Insurance cover we get on lower premium. Some of us just opt for whatever cover the agent says. Most of us land up being underinsured. You need to look upon various aspects such as cost of living, expected cost of living, your income and increase in your earnings, your dependents etc. before taking a cover.
It’s a complex process, I don’t have time, skills, and expertise to access all these factors and determine my insurance need.
You need not – hire a Certified Financial Planner (CFP). The role of a qualified Financial Planner is to look at all aspects of your lifestyle, goals, and requirements and develop a financial strategy suitable for you. The recommended strategy should help you reach your goals effectively and efficiently. Insurance Planning is a part of it in which they would recommend you how much insurance you should have and what mix of products you should opt for viz. term plans, ULIPs etc which would make you financially secure and help you meet your requirements and goals. Once you have a plan designed by a CFP, you can buy various kind of insurance products as recommended by him/her. This will help you getting what you actually need and not what actually an insurance agent needs.
Do not fall in pit of aggressive insurance agents or bank officers who may sell you a ULIP with high charges and low cover. It would be very difficult for you to get out of it
Get a strategy and plan developed by a CFP and be financially secure.
Happy Financial Freedom!