Selling life insurance has become the symbol of targets and pressure. Life insurance agents rushing to meet the monthly targets set by their managers. Targets and commission…This is all life insurance agents care about. Anything goes when it comes to selling life insurance…Mis-selling…Churning…The life insurance agent will do anything to achieve his target. What’s worse…The life insurance companies turn a blind eye to the misdeeds of their life insurance agents. They need the money and the life insurance agents bring the money. “Make Hay When The Sun Shines” this is the motto of the life insurance Company and the life insurance agent. Who suffers…it is you and me, the humble customer who avails life insurance. But do life insurance companies and agents really care about you?
Mis-selling is a deliberate, reckless act of selling life insurance or any financial products to an investor, knowing that the product does not meet his needs. Deliberate omission of important facts on the financial product, which would help the investor make an informed decision. This is also mis-selling.
Just like several of our citizens, you were lured by an insurance plan, called the regular premium unit linked insurance plan (ULIP). You availed a ULIP way back in the year 2009, when they were selling like hot cakes. Insurance cum investment… What could be better? The money you invest in the ULIP grows and you also get the protection of life insurance. Speak of killing 2 birds with a single stone. If you choose an equity ULIP, your money is invested in equity (stocks + equity mutual funds). If you choose a debt ULIP, your money is invested in fixed income securities.
You got a nasty shock when a few months later, a friend of yours told you what a ULIP really was. You had to pay a premium for 3 years, on the ULIP regular premium plan. You could surrender the ULIP only after 3 years. What does this mean? You had to pay the premium each year for 3 years. Only then could you surrender the ULIP. Does this mean you had to pay the premium for 3 years, on the ULIP you simply hated…Was there a way out? You could surrender the ULIP after paying the first year’s premium. However the charges were so high, you practically lost the first year’s premium. You got 0 money back. Frustration…You do not want to see the ULIP…You surrender it just as several of our citizens had done.
The Life Insurance Company now pockets your entire premium as surrender charges. What have you done? You paid the premium for the ULIP and the life insurance agent pocketed a nice commission on the deal. Then you gave up the ULIP and the life insurance Company fleeced you. Do you want to see another ULIP? I bet you don’t. Want to know the combined loss to you and other investors, due to mis-selling of ULIP’s and other life insurance products? A whooping Rs 1.5 Trillion until the year 2013. You and other investors lost faith in ULIP’s. In spite of reforms introduced in ULIP’s way back in September 2010, nobody wanted them. This was a case of Too Little Too Late. Many investors, who had purchased ULIP’s in the 2009 to early 2010 period, saw almost no returns on their investment and surrendered the ULIP’s in 2012 to 2013 period. By this time, ULIP’s had collapsed. Some life insurers even discontinued selling them. Insurance agents ran away from the life insurance business, as they were not pocketing any commissions. Life insurance was no longer easy money. The very survival of the Life Insurance Companies was threatened.
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If you avail a single premium ULIP, you pay the premium just once. The life insurance agent gets a commission of just 2%, on the entire premium you pay for the single premium ULIP. The same holds true for a single premium endowment plan. Why would he bother selling you this plan?
If he sells you the regular premium ULIP, he gets 6%-8% of the premium you pay, as an upfront commission for the first year. He is then able to pocket 4-5% of the premium you pay for the second, third or even the fourth year, as a trail commission. If he sells you a regular premium endowment plan, he gets 35% of the premium you pay, as an upfront commission for the first year. He is then able to pocket, 7.5% of the premium you pay for the second and third year in trail commissions.
The life insurance agent tells you, Invest your money in a ULIP. It will double soon. He also shows you graphs and charts, illustrating how your money will grow. IRDA has made it compulsory for the life insurance agent to show an illustration, which projects returns assuming 6% and 10% annualized returns. He also has to take your signature on the illustration. The charts and illustrations shown to you are based on assumptions. The life insurance agent has neglected to mention the charges on the ULIP. Equity ULIP’s invest your money in stocks and equity mutual funds. Stock markets are risky and the return uncertain. How can the life insurance agent promise you guaranteed returns? The life insurance agent will highlight returns during the good times, when stock markets performed well. He will not show you the bad times. Life Insurance is never bought. It’s almost always sold.
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