There is a famous saying “ Timid Salesmen Have Skinny Kids”. This saying tells you why you need to be very careful, while taking advice from sellers. Sellers have to eat. Their families have to eat. Why would a seller be worried about your needs? Sellers of financial products are no different from sellers of any other product. You visit a bank to open a fixed deposit. The friendly bank executive Suresh, advices you to avail an endowment life insurance plan. This is what he says. Sir…Buy this endowment life insurance plan. Life is short and uncertain. Your family will be well taken care of even in your absence. You also get money back and a bonus when this plan matures. Another bank executive Harish tells you “Sir…Invest your money in ABC equity mutual fund scheme. Your hard earned money will grow in no time.
You are very happy with all this financial advice and decide to take up the endowment life insurance plan. You will also invest in the mutual fund scheme. You think…Suresh and Ramesh have been working as bank executives for several years. They surely know what they are talking about. But is this a good idea? Sure, Suresh and Ramesh know what they are talking about. But do they have your best interests at heart?
Radha is a home maker in Chennai. She has a lot of spare time and does not know what to do with it. One day she gets a call from a long forgotten classmate. Radha’s classmate tells her…Why don’t you become a life insurance agent? You don’t require a high qualification. Even a street vendor sells life insurance. You can also make a lot of money in commission, selling life insurance plans.
Soon Radha becomes a part time life insurance agent. She contacts her friends and relatives and persuades them to avail life insurance plans. She then persuades her neighbors to invest in life insurance plans. Radha even persuades Harsha an old classmate, to avail an equity ULIP. She says...Investing in an equity ULIP is very good, as your family is well protected even in your absence. There’s more good news…Your money is invested in the stock market and grows as the market rises. This is a double benefit, Insurance + Investment.
Soon she has finished advising her relatives, friends and neighbours to take up life insurance plans. Radha now finds life difficult. Selling life insurance is no longer easy. Radha relocates to a new city and gives up selling life insurance. This job is boring and difficult….Selling life insurance no longer interests Radha. She and her husband relocate to another city.
Meanwhile the stock markets have crashed and the equity ULIP sold by Radha to her classmate Harsha, has fallen in value. Harsha who is struggling to pay the premiums on the equity ULIP, finds that this ULIP has a lock in period of 5 years. She had to compulsorily pay the premium for 5 years. Radha never mentioned this while selling the ULIP. Harsha has been mis-sold a life insurance plan by her own classmate. When Harsha tried to tell Radha her problem, Radha replied that she had given up selling life insurance. This was just a past-time which she found no longer interesting. Harsha was all on her own.
Harsha learnt a lesson from this bitter experience. Never trust a seller to give you good financial advice.
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You love shopping at Malls. One day while shopping at the mall near your home, you are greeted by a life insurance agent, who introduces himself as Raghav. You are soon in an intense conversation with him. You talk about…office…family…mutual interests and hobbies. Raghav is soon able to persuade you to buy a life insurance plan. He comes over to your place and sells you what is called an endowment life insurance plan. You have to pay a premium of INR 20,000 each year. The term of the plan is 15 years. The sum assured would be INR 5 Lakhs. You also get a good bonus if you hold this plan till maturity. Raghav advices you to pay the premium and invest in this plan. He says “Your family would be well taken care of in case of your untimely death, if you availed this plan. On maturity of the plan, you would get a lump sum amount. You would get the sum assured + accrued bonus.
Raghav may be a seller of life insurance, but he is now also your friend. Without a care you sign on the dotted line and take up the endowment life insurance plan, after handing over Raghav a cheque for the premium. You pay the premium for 2 more years. You had almost forgotten Raghav, when he again pops up at your place. He says “There is a better endowment life insurance plan, than the one sold to you”. Why don’t you surrender the old endowment life insurance plan and buy this new endowment life insurance plan? Trusting Raghav you again sign on the dotted line of this new endowment life insurance plan and hand him a cheque for this plan.
A week later you surrender your old endowment life insurance plan. This is when you get a shock… You get back only 30% of the total premium you had paid for 3 years, after surrendering the old endowment life insurance plan. You are extremely lucky as you held this life insurance plan for 3 years. Otherwise, you would have got back nothing from this plan. You try to contact Raghav, but he is not around. You are a victim of a trick commonly used by life insurance agents called churning.
Why did Raghav sell you these endowment life insurance plans? The Life Insurer paid Raghav a commission of around 35% of the premium, you paid for the endowment life insurance plan, in the first year. Shocking isn’t it? Raghav also pocketed a commission on the premiums you paid in the second and third year. These commissions were not as high as the commission he pocketed in the first year. Raghav has now sold you a new endowment life insurance plan where he again gets 35% of the premium you have paid. You have lost a lot of money and guess what…you won’t find Raghav around.
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