Insurance Tips: While buying insurance, agents try to trap you in these 4 ways...

The Government of India and the insurance regulator have expressed concern over the mis-selling of life insurance products, leading to several sales strategies that deceive consumers. Recently, Finance Minister Nirmala Sitharaman and Insurance Regulatory and Development Authority (IRDAI) Chairman Debasish Panda raised the issue prominently.

The issue was also highlighted in the Economic Survey 2024. It was found that mis-selling is no longer the work of a few enthusiastic salespersons but has become a common problem. Many bank employees and agents sell insurance products that are not beneficial to the customers but earn a good commission.

The most common and dangerous sales pitch among these is that “this product is like a mutual fund”, when it is a Unit-Linked Insurance Policy (ULIP). A ULIP is an insurance plan that combines investment and insurance, but its lock-in period and investment risk features are different from mutual funds.

The second pitch is “Endowment policy gives safe returns like FD”, which attracts many risk-averse investors. However, this plan is often false as it gives you fixed returns as well as insurance cover, but the returns are very low and you may incur losses in the initial years.

The third pitch is “This policy gives the triple benefit of life cover, tax savings, and investment”, which is often recommended to buy to save taxes at the end of the year. While the insurance coverage in such a policy is less than the investment, its returns are also limited.

Finally, it is also seen that “Buy a guaranteed policy to avoid market fluctuations”. Though these policies promise a fixed return, you have to be limited to returns of 4-7 percent, which are not satisfactory in the long run.

Despite all these issues, IRDAI and other government bodies are trying to take strict measures in this direction. Consumers are advised to get complete information before investing in any insurance plan and invest only in those plans that suit their actual needs and financial goals.