There are also some rogue agents who try to sell insurance by misrepresenting facts and sometimes present a distorted picture of the features of an insurance policy.
Here are four common ways in which insurance is mis-sold to investors. There may be many more ways, but these are most common types of mis-selling.
1– Promising that the insurance policy gives better returns than an FD
A life Insurance policy firstly offers you protection in case of an untimely death so that the surviving family members get a sum assured from the insurer. This “sum assured” is also called protection benefit. For providing this benefit, the insurance company charges you, the customer, a premium.
2 – Not explaining the benefits of the policy clearly and accurately
Many agents distort, exaggerate, and state false returns to show very attractive rates of returns on a policy. Please be careful and watchful of such promises of an agent. If something appears too good to be true, then it probably is!Example of such misrepresentation include cases where customers are told, “you will get x times premium paid out to you;” but the total term of premium payment is not mentioned for getting such a payout. Normally life insurance policies are for the long term (more than 5 years and often for 10-20 years). You must carefully examine the actual annual returns after considering the premium payment term.
3 – Incorrectly stating what can be claimed
Even while selling life insurance, the agent should clearly state under what circumstance a claim is not payable. For example, if the customer was a smoker and declared himself as a non-smoker in application form, upon his death, the insurance company can refuse to pay the death claim to the family. In the case of health insurance, there may be ‘exclusions’ to the policy such as certain types of hospital claims not being payable; for e.g., OPD treatments, illness before a certain number of years of taking the policy (say, for three or four years from the policy date).
4 – Misleading information on premiums
Agents tend to exaggerate the benefits and skip the discussion on ‘costs’ and ‘duties’ with the policyholder. The Insurer is liable to honour its side of promises made in the product and at the same time the customer is supposed to pay his/her premiums correctly, on time and for the full term of the policy. In case the full term is not completed, there may be charges or deductions that the insurer will effect. Therefore, the customer should only commit to that premium amount which is easily payable. Similarly, the customer should understand the consequences of not continuing till the end of the full premium paying term. In case of doubt, stick to the term you are comfortable committing to.
Source – MoneyControl.com
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