There are lakhs of agents and brokers selling life Insurance in India. Most of them are well-intentioned and try to help customers choose policies that are suitable for their need and lifestyle. There are also some rogue agents who try to sell insurance by misrepresenting facts and sometimes present a distorted picture of the features of an insurance policy.
Ultimately, buyers should be well aware of the ways in which insurance is mis-sold to them.
Here are four common ways in which insurance is mis-sold to investors. There may be many more ways, but these are most common types of mis-selling.
Promising that the insurance policy gives better returns than an FD
This is the most common way of selling insurance. The agent tells the customer that an insurance policy is safe and gives better returns than a FD. Please understand that this is not true. A life Insurance policy firstly offers you protection in case of an untimely death so that the surviving family members get a sum assured from the insurer. This “sum assured” is also called protection benefit. For providing this benefit, the insurance company charges you, the customer, a premium.
In addition to the protection benefit, there may be other benefits built into a life insurance product that may act like savings in case there is no unfortunate event. These benefits may be in form of money back, amount payable in between the term of the policy, or benefit at the end of the policy known as maturity benefit. There may be other forms of benefits such as bonus. Please understand that each and every policy first has a protection element and then a saving element. Hence, do not compare it with a pure savings product such as an FD. Besides, do your calculations carefully to see whether the policy indeed offers more savings benefit than an FD. Most common policies may not offer a higher rate of return than an FD.
Not explaining the benefits of the policy clearly and accurately
Simply put, you as a customer should know that you are paying a premium for getting and keeping a life insurance policy. This is your ‘cost’. The ‘benefits’ could be protection, and savings as explained earlier. In addition, life insurance policies have tax benefits.
Many agents distort, exaggerate, and state false returns to show very attractive rates of returns on a policy. Please be careful and watchful of such promises of an agent. If something appears too good to be true, then it probably is!
Example of such misrepresentation include cases where customers are told, “you will get x times premium paid out to you;” but the total term of premium payment is not mentioned for getting such a payout. Normally life insurance policies are for the long term (more than 5 years and often for 10-20 years). You must carefully examine the actual annual returns after considering the premium payment term.
Incorrectly stating what can be claimed
This particular point relates more to health and accident insurance policies. Even while selling life insurance, the agent should clearly state under what circumstance a claim is not payable. For example, if the customer was a smoker and declared himself as a non-smoker in application form, upon his death, the insurance company can refuse to pay the death claim to the family. In the case of health insurance, there may be ‘exclusions’ to the policy such as certain types of hospital claims not being payable; for e.g., OPD treatments, illness before a certain number of years of taking the policy (say, for three or four years from the policy date).
Many customers are given the impression by agents that anything and everything is payable under a claim should a customer go to a hospital or if the policyholder meets with an accident. This leads to arguments and fights. The best way to safeguard oneself against such mis-selling is to ask the agent under what conditions are claims not payable. Also, please read the policy document clearly and understand the clauses.
Misleading information on premiums
Agents tend to exaggerate the benefits and skip the discussion on ‘costs’ and ‘duties’ with the policyholder. The Insurer is liable to honour its side of promises made in the product and at the same time the customer is supposed to pay his/her premiums correctly, on time and for the full term of the policy. In case the full term is not completed, there may be charges or deductions that the insurer will effect. Therefore, the customer should only commit to that premium amount which is easily payable. Similarly, the customer should understand the consequences of not continuing till the end of the full premium paying term. In case of doubt, stick to the term you are comfortable committing to.
The above instances are such common occurrences with several customers. With some buyer awareness, these can be avoided. Many agents may not want to mislead you, but still may omit these important features. They may be in a hurry to close the sale. But some agents may actually want to fool you. Please be aware, ask questions, read the proposal and final document carefully and only then part with your hard-earned money.
(The writer is founder and managing director of Serengeti Ventures Pvt. Ltd)
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