It is said that life insurance is a subject matter of solicitation. This means that the concept of insurance needs to be sold on its merits and cannot be sold through luring people with attractive offers. In spite of this, insurance is mis-sold with offers, and mostly such sales turn out to be a fraud. IRDA, the regulator, runs various campaigns to make people aware of mis-selling, fraud, but the public still falls into the trap. Recently, the IRDA and Insurance Council ran a campaign on mis-selling. Even each advertisement of insurance companies has a warning about mis-selling.
It is also said that insurance is always sold and never bought. This means that the need for insurance is not explicit and it is latent, which needs persuasion and awareness.
Choosing the Right Insurance with Proper Guidance
Given are the various situations for which insurance is sold:
- Dying early – Term Insurance to compensate for income loss.
- Living too long – Pension and Annuity
- Children’s Education and Marriage – Endowment Plan
- Legacy – Whole Life
- Risk cover with Investments – ULIPs
- Protection against loan
- Protection against Disability
- Protection against diseases
Hence, insurance selling requires proper need identification and then recommending the right solution. Intermediaries need to do a Fact Finding before recommendation through steps below:
- Introduce self with ID card and License.
- Seek an appointment to understand the need
- Recommend a solution and take agreement
- Ask the customer to fill the form, especially details that are material.
- Take an agreement on Premium to be paid each year, Premium payment Term, Policy Term, Money on Death, and Money on Maturity as per the 4% and 8% formula mandated by IRDA.
- Awareness of Freelook, Surrender Value, Grace Period, Section 45, and Reinstatement.
If an intermediary is not following these steps, then one needs to be careful. Please note that Insurance Sellers work like a Doctor and should prescribe policy like medicine after understanding the disease, i.e., Need Analysis. The process is important, which is why an intermediary is paid a high initial commission.
If these steps are not followed, then beware yourself and your family. Always call the Call Center of the Insurance Company to check the policy features being told to you. Insurance is a long-term commitment, and buy only if you are able to keep the commitment. Do not overcommit.
Recognizing Insurance Red Flags
Given below are various fraudulent offers which are clear red flags:
- Returns – Insurance cannot offer more than 6% return under any circumstances.
- Interest-Free Loan is offered – no insurance company offers a loan on the paid premium. They offer loans on Endowment products, i.e., 90% of surrender value, which is much less than the paid premium by you. They also charge interest.
- Gold Coin – No insurance company is allowed to make any offer to the customer
- Job assurance – once again no such offer can be made
- Recovery of money from lapsed insurance – there are no conditions. If your lapsed insurance has surrender value, then it will be paid to you, you need not buy any policy for recovery
- Insurance is sold as an FD by the bank– Insurance can never offer a higher return than fixed deposit. Moreover, FD is one-time payment and Insurance requires premium commitment
- A foreign trip – once again, the Insurance company cannot lure a customer
IRDAI understands and as a part of consumer protection offers a free look period of 15 days where you can return the product and take the premium back if you feel that you have been cheated!
How to avoid mis-selling
- Understand the product and ask questions
- Ask for the brochure
- Understand how this product will fit your need
- Understand the premium payment term and the maturity date
- Fill the proposal form on your own and declare everything
- When the insurance company calls before policy issuance, clarify the product once again
- After you receive the policy document, check the schedule page and see if everything is as per commitment
- Raise to the insurance company of any concern within the free look period
Having an insurance product is the most important asset for the protection of the family, and hence care should be taken while purchasing the same.
In the realm of life insurance, understanding its intrinsic value, making informed choices, and recognizing red flags are essential steps towards safeguarding one’s financial well-being and protecting the family’s future. The guidance of responsible intermediaries and the availability of consumer protection mechanisms like the free look period can further ensure a secure and reliable insurance purchase.
By Shilpa Arora – Co-founder & COO
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