I am writing this article after 2 of my clients reached out to me enquiring if its worth investing in some insurance products which their Relationship Manager (RM) recommended when my clients visited the bank branch for some banking transaction. Insurance Mis-selling is quite rampant in banks and this article will help you how to avoid making such bad financial investments.
Bank Relationship Managers have visibility to the cashflow in client’s account and it gives them the advantage of reviewing a client’s financial profile and approach them with twisted sales pitches. Self Employed Individuals or businessmen are their primary targets.
Most of the times these insurance policies are marketed as FD or Savings plan to innocent clients. I have listed some of the most used sales pitches:
- Pay premium for 15 years and from 16th year you will get guaranteed 8% on sum assured for the next 55 years
- Pay for 10 years and from the 12th year onwards you will get almost double of your premium paid for the next 10 years.
- Pay premium for 15 years and from 16th year you will get 15% of sum assured for the next 5 years for kids’ education and residual 25% on maturity along with bonus.
- Pay for 35 years and get sum assured along with yearly bonus and final bonus at the end of 35 years and get life insurance till the survival of the individual.
Now that you have seen the sales pitches, I would want you to take some time to guess the rate of return these products would generate and then scroll down to the end to look at the same.
Another point which you need to consider is most of these RM’s do not spend long period of time with one bank, after few years if you identify any difference between policy benefits explained vs actual benefits, these individuals will mostly not be available for resolution and you will be left alone to fight your battle.
How to identify such Insurance mis-selling sales pitches?
If you were to ask them to help you understand what is the rate of return which you would generate on such insurance policies, they will fail to give that information to you.
Also ask them what is their revenue (commissions) out of such products. During the first year Bank earns a commission of anywhere between 25 to 35% on such traditional insurance products and on ULIP’s it ranges from 3.5% to 7%. I am not against banks or individuals earning for guiding their clients in the investments, but I am against the concept of these guys earning money by mis guiding innocent clients.
Monetary impact after purchasing such policies?
In case of traditional saving insurance plans, if the clients pay for 1 or 2 years and are not able to pay for the subsequent years, then there will not be any surrender value and clients will not get even a single rupee from such policy.
We have seen instances where some policies are mis-sold as single premium policies and would require yearly premium for X number of years. Clients fail to pay premium for subsequent years due to cashflow issues and end up losing significant amount of money.
How to avoid falling prey to such Insurance Mis-selling tactics?
Just like how you consult your family doctor whenever you are starting on new medication or during any health issues, you need to consult a Financial Planner/advisor and seek his professional opinion on such investments before making any commitments.
What if you have already purchased such policies? Free look up period can come to your rescue
All insurance policies come with a free look up period of 15 days and 30 days depending on how they have purchased the policy. Within this free lookup period, you get to review the policy in detail and if you are not comfortable with the terms and conditions or if the policy benefits differ from what has been explained at the point of sale, you can raise a request with the life insurance company to return this policy and claim refund of premiums paid.
Most of the clients upon receiving the policy document, they will take steps to keep the document safe and will not go through the pain of reading the policy terms and conditions.
If its too much to read through the whole policy document, one should at least review the illustration provided to check if it ties back with the sales pitch/promise.
Options after expiry of free look up period for Mis-Sold Policies
Narrate the complete story of how you ended up purchasing the policy to the Life Insurance Company and ask them to reimburse the premiums paid till date and end the policy. It helps if you have any written evidence around the false promises made.
If the Life Insurance Company refuses to honor this commitment, please approach the insurance Ombudsman for resolution.
Happy to announce that we are now providing Insurance Dispute resolution service. We will help you in getting your premiums back in case of mis-selling and in case of any claim rejections i.e., either life or medical insurance, please reach out to us and we will review the case in detail and will guide you through the next steps.
As promised here is the Internal Rate of Return for the sales pitches which we discussed in the top. They even fail to beat inflation.
Sales Pitch # 1 – 5.55%
Sales Pitch # 2 – 5.89%
Sales Pitch # 3 – 5.43%
Sales Pitch # 4 – 4.46%
Mentioned below link will further guide you through the grievance redressal process put in place by IRDAI.
https://irdai.gov.in/grievance-redressal-mechanism1
Please join me in my effort to spread financial literacy and share this post with your friends and family. If you need assistance in any section of personal finance i.e., Income Tax, Investments, Mutual Funds or Loans, we are just a phone call away.