(This appears in the Deccan Chronicle of 7th/8th February 2016)
There are many instances of people who take up an ‘insurance’ product and then discontinue paying premiums. Most of these products are ‘investment’ products, with just a flavour of insurance thrown in as a topping. The commissions that the agents get on such policies are huge.
If you go through an agent who takes a huge cut out of every premium you pay (the cut to the agent starts at near 70% of the first premium and goes down to a ‘modest’ 2.5% over time) you would expect some service. In a restaurant, you normally pay a tip if the service and the food were good. Of late, some restaurants are forcing it on you by including something called a ‘service charge. Insurance agents get a commission whether you like it or not. The agent will only give you service till he collects the first cheque from you. After that, you are on your own.
The insurance regulator is so bad that they have now proposed that should the agent die, the commission out of the premiums you pay will go to their family members!! In effect, these agents are the attached parasites to your insurance payments.
Important things to note are:
- You cannot get these kind of policies ‘direct’ without commission;
- The agent has zero obligation to the client who is going to pay premiums’
- The insurance company is NOT leglally obliged to send you reminders of the due dates of premiums;
- You have no right to change the agent. In fact, you have no right to expect anything from the agent. The agent may stop selling that company’s product and start selling some other company’s. He is very much like a pimp in some other business, which I shall not name. But, with much lower loyalty to the client;
- You cannot just stop paying the premiums before the stipualted term and get your money back, like in Mutual Funds. This is not disclosed up front in a table form with the policy;
- The seller does not give you a ‘draft’ of the contract before you sign on and pay the first premium. After this he ‘legally’ gives you a 30 day ‘look-in’period before the expiry of which you can cancel the policy and get your money back. This is not given in bold print up front. The agent does not tell you. And it could easily be three weeks before you actually get your policy. This will leave you with just one week to understand a complex document. I am sure not one of us have read what the policy document contains. They should at least put up the draft of the policy on the website. The industry thrives on opacity and stealing you blind;
- The advertisements that push life insurance are an illusion. Considering that the industry has been around for so long, the fact that they are not able to get a single real life illustration or endorsement, should tell us so much about the uselessness of the product. In life, those can afford life insurance, generally do not need it and those who need it, cannot afford it;
- If life insurance was really a need, by now most life insurance companies should have been bankrupted. The fact that they continue to thrive and keep getting bigger, should tell us about whether there is a need or not;
- Insurance other than pure life or pure term, is investment. There are far better products available for investment. The returns from an insurance investment product (whether ULIP or endowment or money back etc) are unlikely to even match the returns from a Bank Fixed Deposit. And in no other investment product are the commissions to the agents/brokers so high.
- An agent will not bother to remind you or collect the renewal premium from you. Some do, but most stop after a few instances. And you cannot do a damn. We should have a right to withdhold their commission or deduct it from the premium we pay. But no, IRDA is more interested in protecting the brokers and agents rather than the hapless consumer who gets taken for a ride.
- Now, it is likely that the IRDA will permit the insurance company to treat as ‘income’ the premiums paid on ‘lapsed’ polcies. The implications are frightening. What this means is that if you miss a couple of premiums, your policy will be treated as ‘lapsed’. The premiums you have paid to date will be appropriated by the insurance company. Thus, they will now try and ensure that you do not get reminders and agents will be possibly encouraged to ‘lapse’ policies.
This industry is in crying need of customer representation on the regulatory body. Today, the regulatory body is more like a trade body, out to help the company rather than help the customers.
In case you are a buyer of insurance (only life or pure term) I would urge you to go online and buy it. Lower premium and no dependance on anyone.