How to Avoid Mis-selling of Insurance: Tips to Choose the Right Plan
At a recent event in Mumbai, Union Finance Minister Nirmala Sitharaman raised concerns about the insurance mis-selling of financial products, particularly insurance. Many consumers are pressured into buying insurance products by agents—often friends or family—who repeatedly call and eventually convince them in face-to-face meetings. Trusting these recommendations, people often assume they have bought the “right” policy. However, what may seem like the best choice may not always be the most suitable.
Learn essential tips to avoid insurance mis-selling and choose the right policy for your financial needs. Protect your future with informed decisions.
So, what constitutes a good insurance product? The answer depends on individual needs. What works for one person might not be ideal for another.
When choosing an insurance policy, it’s crucial to consider your income. For those with lower incomes, a modest term plan might be sufficient, while individuals with higher incomes need a more comprehensive plan that can cover the needs and contingencies of their families.
For High-Income Earners
For individuals earning more than ₹1 lakh per month, their dependents may have higher expectations of a comfortable lifestyle and premium education. Therefore, a larger term insurance policy is recommended.
“Term insurance becomes vital for high-income earners as their financial liabilities and lifestyle expectations are usually greater,” explains Rhishabh Garg, Head of Term Insurance at Policybazaar. “Those earning ₹50 lakh or more annually should consider a term plan of ₹5 crore. This can secure your family’s future for just ₹3,000 to ₹3,500 a month.”
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Factor in Liabilities
It’s essential to factor in existing liabilities such as loans, business debts, and other financial obligations when determining the right coverage. “Many rely on liquid assets, but these can fall short and don’t account for future uncertainties,” says Garg. “Some insurers offer coverage up to ₹20 crores in term insurance plans, which can provide greater protection.”
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Avoiding Mis-selling: Tips to Remember
- Do Your Research: Take the time to compare different plans from various insurers. Look into premiums, coverage, benefits, and riders to find the plan that best suits your needs.
- Review the Policy: Read the policy document carefully to understand the coverage, including its inclusions and exclusions.
- Know the Waiting Periods: Be aware of standard waiting periods (typically 30 days for general claims), as well as specific waiting periods for pre-existing conditions or certain treatments.
- Consult an Expert: Seek advice from a licensed insurance advisor or financial planner who can provide an unbiased perspective and help you make an informed decision. They can guide you through different options based on your personal financial situation and long-term goals.
- Verify the Insurer’s Reputation: Before buying any policy, research the insurance company’s track record. Check their claim settlement ratio, customer reviews, and the transparency of their policies. Opt for insurers with a strong reputation for customer service and timely claim settlements.
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- Avoid Over-selling: Be wary of aggressive sales tactics. If an agent is pushing a particular policy without fully understanding your needs, it could be a sign of mis-selling. Ensure that the policy being offered matches your requirements and financial situation, rather than just aiming for a sale.
- Don’t Be Pressured into Immediate Decisions: A genuine advisor will give you time to think about your decision. If you’re pressured into buying a policy immediately, it could indicate that the product is not in your best interest. Always take the time to review the details before committing.
- Ask About All Fees and Charges: Mis-selling often includes hidden costs. Ensure that you understand all the charges associated with the policy, including premiums, administrative fees, rider charges, and cancellation fees. Clarify these upfront to avoid any surprises later.
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- Understand the Policy’s Terms and Conditions: Fully understanding the terms and conditions of the policy is essential. Pay attention to exclusions, limitations, and conditions that may affect your ability to claim. If any part of the policy is unclear, ask for clarification before proceeding.
- Check for Free Look Period: Most insurance policies come with a free look period, usually around 15 to 30 days. During this time, you can review the policy and return it if it doesn’t meet your expectations. Always take advantage of this period to ensure the policy aligns with your needs.
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By following these tips, you can make well-informed decisions and avoid falling prey to mis-selling practices. Always remember that insurance is an essential financial product, and choosing the right one can secure your future.
Disclaimer: This is not financial or investment advice. Please conduct your own due diligence or seek expert guidance for financial planning.
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