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Should one Pick up Insurance Polices which promise stupendous returns

Doubling Return’s... Multiplication.....Pay Less Get more…Aren’t all of these are favorite words. Money doesn’t grow on trees. Whenever returns in any kind of financial products are offered which seem too good to be true, alarm bells should ring in our head... Here there is a famous saying "The Best Thing You Can Do Is The Right Thing; The Next Best Thing You Can Do Is The Wrong Thing; The Worst Thing You Can Do Is Nothing…It would be wise to remember this saying whenever we make any important business and financial decisions. I would like to remind all of you that the team of Financial Planners at Moneymindz.com are always there for you to plan your financial needs in a most efficient manner and are always willing to lend you a helping hand. You can explore this unique Free Advisory Service just by giving a missed call on 022 6211 6588.

Here I would like to give you an example of Mr Harish who after being told of the many benefits of ULIPs purchased a ULIP from a reputed Insurance firm. Mr Harish worked in a Textile Company .He wanted to invest a sum of INR 150000 for his daughter’s marriage in about 3 years time. The agent promised him a guaranteed rate of return of 9% on his investment. A sum assured of INR 6 Lakhs was stated. He paid a premium of INR 50000 for the first year. Here the company deducted 30% as premium allocation charges. Here an amount of INR 15000 was deducted for these charges. The mortality charges are INR 2.0 for every INR 1000 sum assured. Here a sum of approximately INR 1200 was charged as mortality cover for his ULIP Plan. Fund management charges are 2% of the total premium paid in that year. Here another INR 1000 is deducted towards these fund management charges. Policy administration charges were about INR 600. In addition service tax was also charged to him. The amount left behind was just about INR 30000.These were the deductions after the first year. Here Mr Harish was left behind with just INR 30000 of the amount he had invested. This was a 40% drop in the amount that he had initially invested. Of course Mr Harish did not know of all these hidden charges. He barely knew what was a ULIP. Similarly he was charged for the second year as per the necessary deductions. Here Harish had invested 1 Lakh and his invested amount was amount INR 65000. When Mr Harish came to know about this he was shocked. By the time he had payed the third premium the NAV of his policy had increased. However the net invested amount was about INR 105000. Here for 3-5 years the ULIP charges are very high. They then become reasonable as after that the charges are lower. However ULIPs are not everyone’s cup of tea. Experts advise us to keep a time horizon of at least 10-15 years for returns from ULIPs .Of course Mr Harish was angry about the whole deal. This was a case of misselling as the agent had sold Mr Harish a policy which was not necessarily bad, but after being briefed on the requirements’ of Mr Harish, and what he wanted, this was clearly a case of misselling. What do you think Mr Harish’s reaction would be? Mr Harish stated that he would chase the agent across the world if he had to. He went to the bank where the agent was working and complained about the missold policy. They informed him that the agent was a third party and had left and they had no further information about him..What would you think Mr Harish’s opinion on ULIPs would be? Here we need to remember that all that Glitters is not Gold .Here we can look up the website MoneyMindz.com for the latest information on Insurance products such as ULIPs.....

We have come across cases of misselling of a number of mutual funds and other financial products in India. Here I would like to mention another interesting case that I had come across.

Here Mr Ravi had bought a home loan protection policy from a highly reputed insurance firm in India. According to Mr Ravi the insurance firm had given him a verbal assurance that in addition to bearing the loan and EMI liability in case of his death, there was also a clause where they would settle his loan liabilities in case of a job loss in the period that he was unemployed. He was also assured that he would get a call explaining in detail how the policy worked. No call was received by Mr Ravi and in the mean time his 15 day compulsory look in period had expired. Mr Ravi kept pressuring the insurance firm and after 6 months he received his policy details. Unfortunately for Mr Ravi he lost his job soon after this. He approached the insurance firm and asked for his claim as per the clauses in this policy. The insurance company kept citing vague reasons and kept postponing his case. He also checked the policy and found out that the claims for job loss were only for a settlement of 3 EMIs. However none of the vague reasons mentioned to him by the agents were stated in the policy. Now Mr Ravi was in a serious dilemma. The insurance firm kept delaying and postponing his settlements and now it was 4 months since he was unemployed.....

• What do you think Mr Ravi should have done in this case?
• Even though this was a case of mis selling don’t you think there was a hint of laziness on the part of Mr Ravi? Shouldn’t he have done all the checking during the grace look in period?
• Shouldn’t he have cross verified with the documents instead of blindly trusting the agent?
• What are his options now, should he cut his losses by surrendering the policy?
Mr Ravi went around telling everyone how the insurance firm had made false promises to him and looted all his money. He also stated that after paying of his premiums there was no response from the concerned insurance firm. He also made a mention of wrong assurances and inappropriate after service done to him,

Of course once the premiums are paid and the policies are mis sold chances are you will never see your money back again through refunds. Insurance companies know this and this emboldens them to try their luck in mis selling with a huge degree of confidence .Don’t you think insurance firms also need to realize that word of mouth is a powerful marketing weapon and by engaging in honest ethical practices they can still see large profits?

After reading these cases I would like to leave the decision making to my esteemed readers on what are the necessary decisions to be made…If you have any complaints regarding misselling you can post your queries and complaints on Moneymindz.com.

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