I would like to start this article by quoting the famous saying Prevention Is Better Than Cure. In order to prevent misselling from occurring one must know the tricks used against us and the remedial questions we need to ask in order to prevent misselling from happening to us. Don’t we All think it is our duty to prevent misselling from occurring in our society? If you have any complaint regarding misselling you can post your comments on IndianMoney.com.
Any problem ignored at its roots tends to be a scourge later on in life. If an insurance agent tends to succeed on a regular basis getting away with misselling, it emboldens him to try it on a larger scale. This tendency to ignore the small problems leads to frauds and scams being committed on a larger scale. Don’t you think it is our moral right to prevent such misselling from occurring in our society…If you have been subjected to misselling you can post your complaints on IndianMoney.com. You can explore this unique Free Advisory Service just by giving a missed call on 022 6181 6111.
Premium can be stopped in 3 or 4 years
Here agents advise us that after paying the premium for the first 3-4 years all we need to look forward to are the returns. This should raise suspicion in our mind when he should be telling us to invest consistently. Here we need to know that there are no shortcuts to success in life.
You Will Get 10% Cash Back On Premiums Paid
Here the insurance agent tells us that you will be able to get 10% cash back on Premiums Paid. Here we need to see the irony in this. The amounts returned are our own money.This is just a selling gimmick. Here in a ULIP the premiums are so high they include the charges and commissions paid to the agents. Never Be Penny Wise and Pound Foolish
These Are The Most Bought Products In The Market
Here agents tell us not to worry. These are our most selling products. A lot of people have bought these products. Here we need to say , Please Do not tell me about others tell me how these products can help me achieve my long term goals like my retirement goals. Also note the different charges involved in these policies. Always remember the phrase Look before You Leap.
Being Aware Of Our Financial Surroundings
Here we need to have the basic knowledge of insurance in order to prevent misselling from happening to us. We need to ask the following questions.
Do We Need This Policy?
Is This Consistent With Our Needs?
Are We Being Too Greedy And Unrealistic?
Have We Set Our Goals Too High?
IRDA Rules And Regulations Governing The Insurance Sector
- IRDA provides a certificate of registration to a life insurance company.
- IRDA is responsible for the renewal, modification, withdrawal, Suspension or Cancellation of this certificate of registration.
- IRDA frames regulations for the protection of policy holders interests.
- It offers the policyholders the right to voice their complaints against insurers or insurance companies.
- IRDA has set up a grievance reprisal cell to take up the complaints of the policyholders.
- It specifies the requisite qualifications, code of conduct and practical training necessary for the insurance intermediaries and agents.
- It specifies code of conduct for surveyors and loss assessors.
- It promotes efficiency in the conduct of insurance business.
- It promotes and regulates activities of professional organizations connected with life insurance.
- It levies fees and other charges to carry the purposes of the IRDA act.
- It can then call for information from undertaking inspection, conduct enquiries and investigations including the auditing of insurers, intermediaries and other organizations involved in the business of life insurance.
- It specifies the form and the manner in which the book of accounts should be maintained and statements of accounts that should be rendered by insurers and other insurance intermediaries.
- It regulates the investment of funds by insurance companies.
- It regulates the maintenance of margins of solvency.
- It adjudicates the disputes between insurers and intermediaries.
- It specifies the percentage of premium income of the insurer to finance schemes for the promotion and regulation of certain specified professional organizations.
- It specifies the percentage of life insurance business to be undertaken by an insurer in the rural or social sector.
- It exercises any other powers as prescribed
Let us now consider how misselling of ULIPS occurred in India before the September 2010 IRDA Regulations :
- Here the policy taker wants to take an insurance policy with a huge life cover such as a term plan. The agent directs him to take a ULIP saying it is a better product than a term plan and there is no medical test. This misselling directs him to the wrong product.
- All charges in a ULIP are loaded upfront instead of being spread across the life of the product. Here about 40% is cut from the premium in the first year itself, Followed by 10% cut in premiums in the subsequent second and third year with no costs thereafter. All these charges go as commissions for the agents .There are no medicals in a ULIP mainly because the allocated life cover is very low and in some cases there is no life cover.
- Here insurance agents make claims of very high returns in ULIPS. This may not necessarily be true as these are market linked in nature and depend on the stock market returns whose movements cannot be guaranteed. In order to learn more about Insurance and your Insurance Planning needs you can read through IndianMoney.com.
IRDA Passes Rules To Govern ULIPS In India And Why They Were Beneficial :
Lock In Period Increased To Five Years
This is beneficial as it prevents the policy holder from spending the money resulting in a forced saving. Here it ensures the benefits of equity really kick in as there is sufficient time for funds to grow as huge entry costs are involved in these funds.
Level Paying Premiums
Here all regular premium /limited premium ULIPS shall have uniform/level paying premiums.
Even Distribution Of Charges
Charges on ULIPS are mandated to be evenly distributed during the Lock in period. This is to ensure that high entry load is eliminated.
Minimum Premium Paying Term Is Five Years
All limited premium unit linked insurance products, other than single premium products shall have a premium paying term of atleast five years.
Increase In Risk Component
Further all unit linked insurance products other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.
Minimum Guaranteed Return For Pension Products
As regards pension products all ULIP Pension/Annuity products shall offer a minimum guaranteed return of 4.5% per annum as stated or as specified by IRDA from time to time.
Rationalisation Of Cap On Charges
With a view to smoothening the cap on charges, the capping has been rationalized to ensure the difference in yield is capped from the 5TH Year Onwards. This will not only reduce the overall charges on these products , but also smoothens the charge structure for the policyholder. For Further information on IRDA Regulations please lookup www.irda.gov.in
I would like to end this article with the Honorable Finance minister Mr Chidambaram’s views on this sector telling us why there in no robust growth in the insurance services sector compared to the banking sector in India. Here Mr. Chidambaram states that the insurance sector is struggling despite pressing reforms ,is due to rampant misselling occurring in the sector. He states that if you want to sell insurance in India sell simple products and make it absolutely clear that insurance agents should not missell the products. Insurance agents also need to realize that one of the best sources of business is through word of mouth. Once the insurance agent has enhanced his reputation his products would sell themselves .And for the rest of us "Never Judge A book By Its Cover".