By Aruj Aggarwal/ApnaPaisa
IS fixed deposit and life insurance the same? You are right, even the question sounds absurd. But, remember, you could still fall prey to such preposterous questions. This is exactly what happened to Mangesh Pai.
Mangesh Pai went to the largest private sector bank to rollover his fixed deposit (FD) maturity into another FD. However, he landed up rolling over his maturity amount into a life insurance policy instead. A bank officer told him that this would be like a FD with life insurance cover and a minimum 10 per cent interest. Mangesh found it attractive and signed the papers.
Being a busy heart surgeon, he had no time to go through the papers until he received notice from insurance company intimating payment for renewal premium after a year. He was wondering when he bought this company’s insurance policy, that too with such a huge premium? (His FD maturity was huge). While going through all his financial papers, he found that he was cheated and had been sold a life insurance policy instead of a FD. Moreover, the policy has annual premium paying term of 20 years. He further found that it was a ULIP with 35 per cent charges and very low life cover. Mangesh has filed a complaint against the bank with the RBI.
In another case, Priya Arora got a call from a MNC bank where she holds a credit card. Despite showing no interest in an insurance product being pitched to her, she found insurance premium being debited in her credit card bill.
It doesn't stop there. Ahmed who went to a public sector bank for opening a savings account was asked to take an insurance policy. “You need to take this product along with account opening,” said an officer at the bank.
Also read: Lessons my daughter taught me this Diwali!
Why does mis-selling happen?
Targets and incentives coupled with inadequate knowledge regarding insurance, mis-selling is bound to happen. Insurance agents merely push insurance product, which will earn them higher commission, irrespective of whether such product meets your needs or not. But who do you think is the ultimate loser? You!
Look at Kamlesh, the only earning member in the family, ended up paying Rs 70,000 per annum for insurance cover of Rs 5 lakh, most of them are ULIPs with high charges. Being bread earner of the family he should have been given a much higher life insurance coverage at a lower premium. Why does this happen? Most of the agents are, typically, trained on only two or three ULIP products and they sell only those products. If you ask such agents about an endowment or term plans, they wouldn't know any better.
Tip off: Avoid buying insurance from part-time agents because you may fall victim to the wrong product, and you may suffer from bad service from the agent. It will also be difficult to contact a part-time agent in case you need some information about the product.
Also read: Should I close my ULIP policy?
Buying insurance
Typically, when you think of buying insurance you don’t know how much cover you should take. Most of us make our decision based on the premium amount. We opt of whatever insurance cover we get on lower premium. Some of us just opt for whatever cover the agent says. Most of us end up under-insured.
You need to look at various aspects such as cost of living, expected cost of living, your income and increase in your earnings, your dependents etc. before taking a cover. A qualified Financial Planner will look at all aspects of your lifestyle, goals, and requirements and develop a financial strategy suitable for you. FPs would recommend how much insurance you should have and what mix of products you should opt for viz. term plans, ULIPs etc. Once you have a plan designed by a Certified Financial Planner (CFP) or FP, you can get yourself insurance policy.
Final word
Do not fall prey to aggressive insurance agents or bank officers, who may sell you a ULIP with high charges and low cover. It would be very difficult for you to get out of it! Get a strategy and plan developed by a CFP and be financially secure.
Find answers: To your questions on life insurance
Photograph: Vipurva Parekh
This piece first appeared in www.apnapaisa.com (blog), a price comparison engine that allows consumers in India to compare home loans, car loans, personal loans, credit cards, life insurance, health insurance, car insurance, travel insurance and other general insurance policies in India.
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