The mis-selling menace: What you should bear in mind prior to purchasing insurance

Beware of mis-selling pitches to avoid ending up with unsuitable policies

India has made significant advancement in insurance penetration, especially in the last decade, and it is steadily rising as we stride towards ‘Insurance for all by 2047.’ As of financial year 2022-23, the penetration stood at 4 percent of GDP, with life insurance comprising 3 percent and general insurance the rest.  Further, it is expected that the Indian market will record the fastest growth in premiums among G20 countries between 2024-28.

However, with greater penetration, mis-selling has also increased. Whether intentional or otherwise, mis-selling affects consumer trust in insurance companies as well as in the product being sold. On the occasion of National Consumer Day on December 24, here are the key aspects a buyer should bear in mind when purchasing life insurance to avoid being sold a policy that does not serve his or her needs.

Also read: Life insurance mis-selling: 4 dubious sales pitches you need to steer clear of

Be clear about your life insurance goals

Among the most common reasons why consumers may be misled into buying life insurance is lack of clarity about why they are purchasing it in the first place. At its core, life insurance offers protection and extends financial coverage to loved ones in case of any unforeseen circumstances.

There are several life products in the market,  including unit-linked plans (ULIPs), endowment plans, retirement plans, etc, that are meant to help you invest towards your short, medium, or long-term goals, along with an insurance cover. It is important to remember that depending on your life goals and your current and potential financial situation, any or all of such policies may be suitable for you. But it is either you or a trusted financial advisor who has to determine that, not a well-wisher or a person seeking to get a commission from selling you the policy.

If you are the sole earning member of your family or a key financial contributor, term insurance will be the most critical. As you near retirement, retirement plans will serve you in good stead. Similarly, as part of a healthy financial portfolio, you could also consider investing in ULIPs to hedge risks. However, simply buying insurance plans to save on taxes or because they offer “higher returns” may result in you being saddled with policies that do not work for you.

Do not get coerced

As a consumer, you have the right to take your time in making a purchase, especially when it comes to life insurance. Do not hesitate to ask questions, pore over policy documents, and seek clarifications as required. With the world wide web at your disposal, you can browse the websites of insurance companies, compare offerings, and choose to buy either through an advisor or directly. If you find an advisor rushing you to seal the deal because an “offer is running out,” you may want to reconsider purchasing from him.

Also read: Insurance in 2024: Higher life insurance surrender values, shorter moratorium period in health insurance and more

Know your rights

Even after you have purchased a  policy, if you feel that it does not meet your requirements, you have the right to return it and get the premium refunded. The Insurance Regulatory and Development Authority of India (IRDAI) has mandated that all insurance providers must offer customers a free-look period (typically between 15-30 days), during which they can cancel the policy without any penalty.

If you feel that you have been sold a policy without being provided the necessary details, you can raise the issue with the insurance ombudsman, the IRDAI, and even the consumer grievance forum.

Having life insurance as part of a diversified financial portfolio is a necessity. However, the type of insurance, coverage, and duration are dependent on your requirements and unique situation. So, make sure to do the due diligence through primary research, asking your advisor to clarify your questions, and comparing available options.

Here’s to making informed decisions!

(The author is the MD and CEO of Future Generali Life Insurance)

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.