While those of you who are wondering what does F.D have to do with life insurance…Beware…you could be a victim of it.
As it happened with Mr. Mangesh Pai who went to the largest private sector bank to rollover his F.D maturity into another F.D; he landed up rolling over his maturity amount into a life insurance policy instead. He was told by a bank officer that this would be like a F.D with life insurance cover and 10% interest minimum. Mr. Mangesh found it attractive and signed the papers.
Being a busy heart surgeon, he didn’t get time to go through the papers he got after few days until to his surprise he got notice from insurance company intimating payment for renewal premium after a year. He started wondering “when did he buy this company’s insurance policy, that too with such a huge premium?” (his F.D maturity was huge). While digging through all his financial papers in his file, he found that he was cheated and been sold a life insurance policy instead of F.D which he wanted. Moreover the policy has annual premium paying term of 20 years. He further found out that it was a ULIP with 35% charges and very low life cover. He has filed complaint with RBI and is fighting against the bank.
With thirst of earning huge commissions, bank hire people mostly young who have inadequate knowledge and experience on insurance. These people with tag of “Financial Advisor” or “Relationship Officer” are given targets and incentives. On the verge of achieving those targets and earning incentives, they tend to mis-sell in a big way. Same is the case with “Relationship Managers” of most broking firms. They are trained for aggressive sales and thus have only one thing in mind…sell insurance to anyone anyhow and achieve targets. The ultimate losers? Consumers. Beware…
In another case, Mrs. Priya Arora got 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. Mr. Ahmed who went to a public sector bank for opening a savings a/c was asked to take an insurance policy. “You need to take this product along with a/c opening,” said an officer at the bank.
While the advent of private life insurance companies have definitely increased insurance penetration in India which is still very low, it has also definitely increased mis-selling of insurance products. With increasing number of insurance companies so are increasing number is insurance agents. Companies are hiring agents very aggressively to boost sales as a result of which you will find many college students, housewives, doctors, teachers, and people with part time jobs as insurance agents who sells insurance part time merely to earn some extra buck. These people lack knowledge, skills and experience; result of which – wrong product being sold or mis-selling. Insurance agents merely push the product which is earning them higher commission irrespective of weather such product meets your needs and requirements or not. As is happened with Mr. Kamlesh the only earning member in the family who ended up paying 70000 p.a merely for 5 lakh of insurance cover, most of them are ULIPs with high charges. Being bread earner of the family he should have been given much higher life insurance coverage at a lower premium.
Most of the agents typically are 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 most of them don’t know much about it and they will try to convince you that this or that ULIP product is better, that it has given 30% returns in last 5 years.
It is recommendable to avoid buying insurance from part time agents primarily because you may be victim of the wrong product which may not meet your needs, you would suffer from bad service from the agent and secondarily this is their part time work, they would be out of it anytime and then you would be all lost.
So shouldn’t we buy insurance at all? If we have to, where do we get it from?
While life insurance cover is one of the most important things to have for an earning member of the family, we need to determine goals, requirements and how much insurance do we need. Typically, when we think of buying insurance we ourselves don’t know how much cover we should take. Most of us decide it on the premium. 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 land up being underinsured. You need to look upon 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.
“It’s a complex process, I don’t have time, skills, and expertise to access all these factors and determine my insurance need!”
You need not - hire a Certified Financial Planner (CFP). The role of a qualified Financial Planner is to look at all aspects of your lifestyle, goals, and requirements and develop a financial strategy suitable for you. The recommended strategy should help you reach your goals effectively and efficiently. Insurance Planning is a part of it in which they would recommend you how much insurance you should have and what mix of products you should opt for viz. term plans, ULIPs etc which would make you financially secure and help you meet your requirements and goals. Once you have a plan designed by a CFP, you can buy various kind of insurance products as recommended by him/her. This will help you getting what you actually need and not what actually an insurance agent needs.
Do not fall in pit of 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.
Happy Financial Freedom!
September 23rd, 2008 at 11:32 am
Comments are Welcomed!!!
September 30th, 2008 at 2:26 pm
Good, bold article.
The Financial Services industry has treated caveat emptor as a motto, and honesty as a joke. A MNC banker told me that she is terrified with the RMs promises to invsetors, the transactions violate many banking laws.
For the younger an attractice insurance product is Accident Insurance (the chances of accidental death are higher than any other pre-60). Now try to buy it! Very difficult!
Keep going though! Cheers
October 4th, 2008 at 3:58 pm
This article is absolutly correct, Agents are misselling insurance products and even paas back hefty kickbacks also. Only CFP’s can give proper advice to the clients because they are financial doctors, As per me everyone should hire one CFP so that they can live without any financial problems .
Anubhav jain(CFP)
9873300701
October 13th, 2008 at 12:38 pm
This article is so true of the current scenario…People succumb to pressure and end up buying a product thats not going to help their cause.
Insurance is slowly emerging in India and still there is ignorance about insurance. People still mistaken insurance for investment hence end up with ULIP’s or Endowments..failing to understand insurance is taken to compensate for the losses.
With the current situation people hesitate approaching CFP’s, in thgat case they can identify their own needs, be it health insurance, accidental plan or hospital cash, as CFP’s are rarely known concept in the market and is growing with insurance..where people may hesitate paying for the services in India unlike abroad where they are treated like God for investment advice.
October 13th, 2008 at 2:43 pm
Your article is good but it is very long. You right, most these agents don’t know their job. Though they are licensed from IRDA to sell the policies their knowledge is limited. They don’t have any practical knowledge. Companies must give them proper training about all the products.
October 13th, 2008 at 2:49 pm
Anubhav we know that CFPs are financial doctors but their primary job is to allocate funds. They may not be as good as insurance agents in suggesting an insurance policy. But one must buy the policy from an agent who is well experienced.
October 13th, 2008 at 6:23 pm
The examples you have mentioned in the article are very true, but how come you are so confident of CFP’s, may be because you are a CFP.
But tell me one thing insurance agents who sell insurance are also IRDA certified, hence they are also suppose to sell right product. Still they are doing misselling so why should an investor trust CFP, they can also do the same. Who is the supervisory body for CFP ?
October 23rd, 2008 at 8:57 pm
@ Raima Bhula -
The Job of a CFP as stated in my article is not to sell insurance but suggest insurance requirement based on his networth, family expenses, inflation etc. Accordingly considering his goals & profile a CFP will suggest how much insurance one needs & mix of products viz. term plans, ULIP’s etc which will help him achieve client’s goals & make his family financially secure.
A CFP may or may not be a insurance agent. Once someone gets an Insurance plan designed by a CFP he may buy various plan suggested by CFP from anywhere else or from CFP itself.
October 24th, 2008 at 7:33 pm
@ Shikha -
I am not a CFP but would be in few months…
As Insurance Industry in India is regulated by IRDA…CFP’s in India are supervised by Financial Planning Standards Board (FPSB), India..
CFP’s have to follow strict Code of Ethics as prescribed by FPSB India
The difference between a CFP & Insurance Agent or Investment Advisor is like a Doctor & Chemist
If you go to a Doctor for say loose motions, he will first conduct your checkup, ask few questions, may conduct some tests, analyse what is the cause of the problem & then prescribe treatment & medicines to cure it. Also he will suggest you certain measures to follow so that the problem can be avoided in future…He will charge fees for consultation…This consultation tend to ultimately make you healthy & fit
whereas if you go to a chemist with the same problem of loose motions, most likely either he will sell you a medicine of a company which is paying him hefty commissions or which is most commonly sold irrespective of analysing the effect of such medicine on your health, root cause of your problem etc..This may ultimately lead to birth of a new problem & instead of making you healthy & fit, it may worsen the situation which may be dangerous & take long time to heal…
As Medical Doctors are doctors for your health; CFP’s are doctors for your finances. CFP’s are well qualified & they earn their living by charging fees for consultation & designing a financial plan.
As Insurance Agents or Investment Advisor earn their living only on commissions, in thirst & greed of earning more they tend to sell products with huge commission irrespective if it suits the client profile or not just like a chemist tends to do..
I guess this answers your comment…
November 18th, 2008 at 3:23 pm
Very Very Very bold article. I must say you have the guts to come out with the reality on a website which is accessible to everyone. You are right that insurance is actually sold not bought in india and most of us fall the pray of agents who actually dont know what is the need of the client. As you wrote they have their own targets to achieve and immense pressure of selling products they tend to mis-sell. Ofcourse today banks are also looking to sell as many products as they can to improve their branch turnovers resulting immense problems for unaware account holders or investors. If they really want to sell the product they should be provided with proper training and knowledge to guide the investor correctly after all its his/her hard earned money.
November 18th, 2008 at 4:35 pm
Hi Aruj,
Every product has its own USP. As far as ULIP as compared to FD,ULIP is better. Yeah because in case of FD is taxable income whereas in case of ULIP if you take Debt option it is a tax free income. All debt products apart from insurance products have tax implications. Now as far as charges are concerned you can reduce it to 2% of the premium amouunt by taking a single premium product. The fund management cost and admin cost would be far lower then the tax liability under FD.
November 18th, 2008 at 7:22 pm
The article has covered a true picture of an agent who sells insurance. I would like to add one important point which was missing is that the agents after selling don’t even keep a relationship with their client and then the clients faces a problem of paying premium as he is unaware where he has to pay and even in most of the cases he forgets to pay the premium as no one is there to remind him. This result in policy lapses.
November 18th, 2008 at 7:36 pm
Every thing is right about the article but when the article comes to its end it talk about CFP’’s. I would like to inform the author that even to get a good CFP is very important as well as difficult. So i want to say that even guide how to find a good CFP. As it is not necessary that every CFP is a good financial planner.
November 19th, 2008 at 4:41 pm
Looks like this is a standard con game carried out by the Insurance agents and Financial Advisors. I feel this is so widespread that it needs to be brought out in the open and the culprit banks, agents, advisors punished, their licenses revoked!
I have been myself a victim of this fraud when I was given to understand that the large investment I do will take care of feeding the insurance premium for the rest of the insurance life (20 years) only 20% of the amount would go towards feeding the premiua part.
And lo and behold after one year they send me a 5p inland letter informing about the large amount I still need to put in. And since I did not agree and was awaiting some decision they promptly put the whole account into suspense and I had no other choice but to extract a huge sum from my already massacred mutual funds and keep this afloat…
What is the recourse for us agains these connected scheming bankers?
November 20th, 2008 at 12:37 am
Look Akbar Faruqui: Most of the CFPs are good as they just dont become CFPs overnight. It is a long process- they are tested on all the possible concepts which are relevant… Only people with experience become CFPs. So dont worry, your money will be in safe hands.