8 Agents Tricks To Make You Pay

When it comes to selling an insurance policy, agents try all means to sell you one. And the worse part of these tricks is that even educated and well-informed people like us fall into their trap. Here is a list of 8 such commonly used tricks, which should ring a bell in your mind after reading this…

1. Historical high returns: The agents try to buy you insurance by giving some illusion on fund’s huge returns in the past 3 to 4 years. But, past returns are not a guarantee of future performance. In case of equity funds, it depend more on the business cycle, the Indian stock market and overall global economic conditions rather than the portfolio performance of fund manager. So, stick to your fundamental basis of deciding what amount of risk you would can to take and then decide your funds for investment.

2. Everyone is buying: In case, the agent asks you to buy a plan because others are buying – Stop and think. Think on what is so great in the plan that everyone is buying it. A sad reality of the personal finance industry is that most of the products are sold irrespective of the consumer needs.

3. Buy ULIP and get protected for free: The agents generally push products, which get them maximum commission. It is you, who has to decide what kind of and how much insurance you would require. For the same, it is important to know the following facts:

1. Terms plans give you a better cover for lesser premium for a fixed term such as 25 to 30 years.

2. Whole life policies protect you for your entire life. You keep in paying premiums for your entire life and your family gets protected.

3. Endowment plans, unlike to term plans, give benefits/ assured return if you survive by the end of the plan, say 25 to 30 years.

4. ULIPs are unit linked investment plans, which help you grow your money by investing in various investment instruments. They also provide life cover, and charge higher premiums. ULIPs are the riskiest of all insurance products available. The two reasons being:

   • The premiums paid by you are first treated with a variety of charges based on the fund you have chosen, which reduces the actual amount to be invested. These charges include premium allocation charges, policy administration charges, fund management charges, mortality charges, switching charges, etc.

   • The returns in ULIPs are not assured and you may end up earning negative returns.

4. You can stop paying premium anytime: Pay premiums at choice, is an age old agents’ strategy, which is nothing less than a bold lie. Once, you stop paying the premium of your policy, you will face discontinuance charges that are levied in accordance with the year of your last paid premium. According to the latest IRDA rulings, following are the charges that are levied to you in case you stop paying premium before 5 years.

    

5. Save your tax: Undoubtedly, insurance products help in saving the income tax on up to Rs 1 lakh under section 80C. But here, it is important to know which instrument would be beneficial to get a tax rebate on. For instance, if you are buying a ULIP plan just for the purpose of saving tax, it is as good as wasting Rs 1 lakh as a wrong ULIP, which is not in line with your strategy will pay no/ minimal growth, and moreover, the charges will keep on reducing invested principal amount. Instead, market-linked tax saving instruments like ELSS and ULIPS are most suitable for risk-bearing, young and aggressive investors who have the time and cushion to earn high returns in long run.

For tax saving purpose, other traditional insurance instruments work better if you are looking for cover for your family and are not focused on investment.

Invest in ULIPs only when you are more inclined towards growing your money, instead of saving tax or getting protection.

Also, before going in for any more insurance products after April 2012, it is important to consider the tax implication under new DTC regime, as it under this, ULIPS and other insurances along with tuition fees of 2 children would get a rebate of Rs 50,000.

6. Assured returns and guaranteed additions: Agents would monger over ‘assured returns’ and ‘guaranteed additions’ part of the policy. They would tell you that the company is going to declare its results in the near future, and additions are sure shot. And most of us are likely to fall into this trap believing that we would be getting more returns on paying the same amount of money. For example if my fund value is Rs 100 and I get 10% additions, this means that I would get Rs 10 added to my fund value. In other words, the value of addition would always depend on your fund value.

In addition, agents also lure you to invest your money in equity funds, which may prove disastrous for your age and risk profile as there is no security for even the invested amount, let alone the returns.

Apart from this, there is one more kind of additions, which are added in your sum assured amount, that too only when your policy is a participating one. These policies guarantee you a part of profits as an addition in sum assured only, if the companies in which you have invested your money earn profits and declare the same for you. Not otherwise. Another important point is that the sum assured amount will only be paid to you in case of your death.

7. Attractive names’ polices: Insurance, is majorly sold on basis of the names they have been driven from. Let’s say, there exists a policy called ‘golden opportunity child plan’. It does not necessarily means that it will provide you with a golden opportunity of save for your child’s future or something like that. Hence, do not go by the names and analyze them carefully before investing your money.

8. Cash payers beware: According to an IRDA ruling, insurance companies cannot accept premium in cash. But sales agents do not tell customers this. A live case has been recorded by ‘Business Today’ about one Phani Shekhar from Hyderabad, who paid Rs 1.5 lakh to his insurance agent he had known for years, as premium. He only came to know of the fraud when he got a call from the insurance company saying that his cheque had bounced. It was only then he noticed that the receipt which had been given to him by the agent displayed ‘payment by cheque’ instead of ‘cash’.  Insurance agents, after committing such fraud, even change the address of the customer on forms, so that they can never get caught. It is thus advisable to fill the forms yourself after reading all terms and conditions.

The best way out is to go through the offer documents carefully and find out the truth, ask for clarification, if required, compare it with the other plans available in the market and make an informed choice. Be financially independent.