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The recent Allahabad High Court verdict in favour of a victim of misselling of an insurance product has once again turned the focus on the dubious sales pitches made by insurance companies and their intermediaries at the time of selling products.
Sure, the case relates to an era when insurers were busy making money selling Unit Linked Insurance Plans (Ulips) that offered huge commission to their salespersons.
Since 2010, the Insurance Regulatory and Development Authority (Irda) has taken several measures to curb mis-selling, but enterprising advisors still manage to con many unsuspecting insurance seekers.
Duped customers often complaining about the "promises" made by the advisor while explaining the details of the product. But by the time most people figure out about the broken promises, it is already too late. This is because redressal could be long drawn and often time consuming, as proving the "verbal" promises made by the salesperson could be extremely difficult.
In fact, you are likely to be told that you ought to have cancelled the policy during the free-look period if you found it to be unsuitable. Unfortunately, not many policyholders are aware of this 15-day window when you can return policies. You should never go blindly by the tall claims of the insurance advisor. Always remember that if the promise is too good to be true, there is always a catch. Here are a few too good to be true pitches that you might come across in your interaction with insurance players.
Claim: This bond is better than a FD What it implies:
The product is similar to FD and it assures returns Truth: Mostly it is an insurance product without any assured returns Walk into a bank to open a fixed deposit of five years or more, chances are that the official at the desk would ask you to go for a bond that offers better returns. Some distributors also tend to pass off traditional endowment plans that invest in secure government securities and debt instruments as tax-free bonds. They are presented as assured returns products to unsuspecting insurance-seekers. The investor who was looking to park his funds to earn interest ends up paying mortality charges for the life cover he probably doesn't require. The blow could be brutal for elderly individuals who get duped into buying Ulips or endowment plans where the mortality charges for their age bracket are steep.
Claim: You just have to pay the premium this year Implication:
It is like just any other one-time investment Truth: It is mostly an insurance product that requires regular premium. We are not talking about single premium products here. We are talking about regular insurance products sold on yet another tall claim. ULIPs are sold as not having any lock-in period and like a regular account in which one can pay premium and withdraw whenever the insured needs funds. Often, the policyholder realises that she has been taken for a ride only when she receives a reminder from the company about paying the premium. Lesson for you: don't skip reading policy brochures. Also, go only by what is written in the brochure, not the interpretations of your agent.
Claim: Switch to another policy and earn better returns Implication:
There is a better product that will give you superior returns Truth: The new product offers better commission to the advisor When your insurance agent tries to convince you to sell your existing insurance policy and buy a new "better" product, just must him the door. Look him in the eye and tell him that insurance product is not like investments and you don't buy and sell them periodically.
The only reason that the agent is trying to push the new product is the attractive return it fetches him.
Insurance products with investment component typically pay higher commissions in the initial years.
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