Unethical sales practices aren't new and not restricted to any one industry. The classic customer warning, "caveat emptor," dates to ancient Rome. The phrase "ethical selling" quickly is becoming just an oxymoron. Someone who buys a wrong Unit linked insurance plan is hurt a lot more than someone who buys a fake cannon camera for Rs 18000. The various sales pitches as discussed in the slids to come not be exercised by all of those in the profession, however, an understanding of them may help you in dealing more effectively the next time someone comes calling
The unit-linked insurance plans are believed to be transparent and it has become it forte to a large extent. The various charges and their application are explicitly revealed in the brochures and also the various investment avenues wherein your funds are going to be invested are disclosed. When everything is overboard, then how come, the industry is plagued with mis-selling? Perhaps, the communication that takes place between the agent and you is leading to such mis-selling practices. Its not that something is represented wrongly but a lot many times, there is concealment of facts. Below, we look at some of these sales pitches that may fall under the norms of mis-selling
The pitch : “Ulips are mutual funds with free insurance.”
The reality : Nothing is free. Ulips charge for the insurance cover through a cost called ‘mortality charge’. Mutual funds are a pure investment instrument whereas a Ulip bundles life cover with investment. Both give you options to invest in debt and equity products and target less or more risk-bearing returns. What to do: Determine what works for you. Funds are for those who can systematically invest on their own, Ulips for those who need regular nudges
The pitch : “ Our funds have given very high returns last year
The reality: Equity Ulips have done in the past three years because the markets have done well. Ask for return history in comparison to their benchmarks. The BSE 100 has given annualised return of 57.35% last year and 50.72% over the last three years, as on 31 Oct 2007.
What to do: Check the return the agent is pushing against the above returns
The pitch : “Invest for just three years and still keep the plan alive.”
The reality : Most Ulips have an option to stop paying premiums after the first three. The plan will continue, but you do pay for it. The cost of the life cover will come from your invested money through redemption of units to pay for the mortality charge each year. These charges will eat into your total returns in the long term.
What to do: If you want life cover with investment, do NOT take ‘holidays’ in premium payments unless hard strapped for funds