Policy buyers should always understand the purpose of purchasing life insurance. There are many agents, brokers, and even bank clerks who sell life insurance policies with the goal of helping buyers choose policies that are right for them based on their needs, wants, and time. changes in their way of life.
However, there are also agents, brokers and bank managers who attempt to sell life insurance by misrepresenting the facts and features of a policy. Therefore, buyers should always be aware of the facts and ways in which the policy is mis-sold to them.
Here are some of the common selling points they can use to get you to invest in them, and what they mean.
ALTERNATIVE TO MFS
The promise of higher returns on unit-linked insurance plans (Ulips) is one of the examples of mis-selling. Most often, when people ask for good returns on their investment, trading agents try to sell Ulips as an alternative to mutual funds.
The common selling point an agent makes when showing a benefit illustration is that the product will yield almost 8% return per annum (pa) on their investment. This way, people tend to believe that one can get better and guaranteed returns on Ulip while comparing it to mutual funds.
For example, when the market is bullish, exposure to an equity fund through Ulips can give you reasonably good returns by the end of year five, and so on.
However, you should be aware that Ulips returns also depend on the underlying performance of each asset class or fund option. There is no guarantee that the fund will provide any specific return and the value of the fund is not an insured amount.
Also, in many cases, people are unaware that they are being promised too many returns. “Insurance agents are selling policies claiming returns of 8% per annum, but the real XIRR is around 3-4% per annum only,” said Mrin Agarwal, founding director of Finsafe India.
Moreover, for Ulips to be profitable, it takes almost a minimum of 8-10 years as there are many upfront costs and fees. Also, if the markets are bearish, it may take a lot longer for your investment to pay off.
BETTER THAN FD
Today, under the open architecture model where even banks can sell life insurance products, it becomes easy for them to target bank customers, especially the elderly, to sell life insurance policies. insurance instead of fixed deposits (FD).
Older people who are retiring often approach bank managers and ask them to deposit a lump sum in DFs. However, the manager easily convinces the pensioner to buy insurance by showing him the illustration of the advantage with a return of 8% per year. Moreover, after-tax returns, compared to DFs, also encourage older people to invest in insurance products.
However, the real question is: should you buy life insurance after retirement? FDs being a debt instrument earn a fixed rate of interest while Ulips are market linked, and returns are not guaranteed. Therefore, to create more wealth after retirement, seniors must first understand the risk of financial products before making investments.
“As a retiree, you have to be very careful when committing money. The portfolio during the retirement years should consist of a combination of products offering security, accessibility or regular payments. Ulips does not have any of these features,” said Prableen Bajpai, founder of FinFix Research & Analytics.
“Plus, insurance also gets expensive as you get older,” she added.
MINT TO GO
You need to understand that life insurance should be purchased with the perspective of ensuring your family’s financial security first in the event of the death of the policy purchaser, and then considering other benefits.
