11 Life Insurance Mistakes & How to Avoid Them

Summary

This video script addresses common yet often overlooked life insurance policy mistakes, including misinterpreting returns, underestimating inflation's impact on coverage, and misunderstanding terms and conditions. The speaker draws from personal experience and consumer feedback to highlight 11 uncommon blunders, offering insights into how to avoid them and emphasizing the importance of due diligence and clarity when dealing with insurance policies and intermediaries.

Takeaways

• 📊 Life insurance policies are often misunderstood due to aggressive marketing, leading to disappointment when the actual returns are lower than expected.
• 💡 Policyholders frequently overlook the impact of inflation on the real value of their insurance coverage, which can result in a significant shortfall in meeting future financial needs.
• 🔄 The misconception that life insurance premiums remain static hides the reality that the sum assured decreases in real terms over time due to inflation.
• 🚫 Endowment policies are often incorrectly sold as short-term financial instruments, which is misleading as they are designed for long-term commitments.
• 💼 Intermediaries in the insurance industry, while valuable, may sometimes provide biased information due to their income being tied to policy sales.
• ⏳ Many policyholders are unaware of the financial implications of the free-look period and the deductions that can be made during policy cancellation.
• 📝 The grace period for premium payment is commonly misunderstood, with some not realizing the consequences of policy lapse and the difficulty of revival.
• 🚫 The indisputability clause (Section 45)误区地被认为是无条件的保护，但实际上在欺诈或重大误申报的情况下，保险公司仍然可以挑战索赔。
• 🏆 Nomination rules are often misinterpreted, with nominees not necessarily being the final recipients of insurance proceeds, which can lead to legal disputes.
• 🔄 The 'return of premium' feature in term insurance is not as beneficial as it seems, as the returned premiums lose value over time due to inflation.
• 🔗 ULIPs have improved their charge structure, but policyholders must still be vigilant about the various charges and their impact on long-term returns.
• 👥 Group life insurance policies differ significantly from retail policies, and policyholders should be aware of these differences to avoid misunderstandings.

Q & A

What is the main topic discussed in the video script?

The main topic discussed in the video script is the biggest life insurance blunders people make, including mistakes in buying, managing, and claiming policies.

Why does the speaker emphasize the importance of understanding the return component of life insurance policies?

The speaker emphasizes the importance of understanding the return component because policyholders often misread it due to the way it's marketed, leading to disappointment and regret when they realize the actual returns are lower than expected.

What is the issue with considering life insurance policies as a short-term investment similar to fixed deposits?

The issue is that life insurance policies, especially endowment policies, are designed for long-term commitments and have a minimum tenure of 5 years. Treating them as short-term investments can lead to misunderstandings and financial losses.

What are the three key charges that an insurer can withhold when a policy is cancelled during the free-look period?

The three key charges are the proportionate risk premium for the days the policy was active, the stamp duty, and the cost of any medical examination conducted by the insurer.

Why is it a mistake to ignore the impact of inflation on the sum assured of a life insurance policy?

Ignoring the impact of inflation can lead to a significant shortfall in the real value of the sum assured over time, which may not meet the future financial needs of the policyholder's family.

What is the 'Rule of 4' mentioned in the script, and why is it important?

The 'Rule of 4' refers to four people who should know about your life insurance plan: your parents (especially if unmarried), your spouse, a cousin of a similar age, and a family friend around your age. It's important to ensure that your loved ones are aware of your policy in case of any unforeseen circumstances.

What is the significance of the indisputability clause in life insurance policies?

The indisputability clause, as per Section 45, protects policyholders by preventing insurers from disputing claims based on inaccurate or false statements made in the application after two years of issuing the policy, unless there is fraud or material misrepresentation.

Why should policyholders be cautious about the 'loyalty additions' in ULIPs?

Policyholders should be cautious because 'loyalty additions' are often a marketing tactic to retain customers and may not significantly boost returns as advertised. It's important to understand the actual impact of these additions on the policy's performance.

What are some of the key differences between group life insurance policies and retail policies?

Key differences include the coverage expiring when leaving the group or if the group ceases to exist unless a conversion option is provided, and the renewal premium, which can vary in a group plan based on organizational negotiations.

Why is it important for policyholders to be aware of the terms and conditions of their life insurance policies?

It is important because a lack of understanding can lead to mistakes such as misjudging the impact of policy lapses, misunderstanding the free-look period, and not being aware of the exceptions to the indisputability clause, which can result in financial losses or claim denials.

What is the role of intermediaries in the insurance industry, and why should consumers be cautious when dealing with them?

Intermediaries such as agents, brokers, and online aggregators play a role in distributing policies and spreading awareness. However, consumers should be cautious because intermediaries' income is linked to policy sales, which can create a conflict of interest and lead to biased information provision.

Outlines

00:00

📊 Life Insurance Blunders and Their Impact

The script begins by addressing common misconceptions about life insurance, focusing on the mistakes people make when buying, managing, or claiming policies. It emphasizes the importance of understanding the nuances of different types of life insurance, such as term insurance, ULIPs, traditional plans, and group life insurance. The speaker aims to highlight less obvious mistakes, urging viewers to be aware of the marketing tactics used to sell policies and the importance of considering factors like inflation and policy returns. The script also mentions the role of the IRDAI in protecting consumers and suggests ways to avoid common pitfalls.

05:02

💡 Understanding the True Value of Life Insurance Policies

This section delves into the misinterpretation of life insurance policy returns and the impact of inflation on the sum assured. It discusses how policyholders often overlook the eroding effect of inflation on their coverage, leading to a shortfall in meeting future financial needs. The speaker suggests strategies to counteract this, such as purchasing additional term insurance or opting for policies with an escalating sum assured. The paragraph also touches on the benefits of seeking advice from insurance consultants like Ditto to make informed decisions.

10:05

❗ Avoiding Common Pitfalls in Life Insurance

The script continues by warning against the misuse of endowment policies as short-term financial instruments, emphasizing the long-term commitment required for such policies to be financially viable. It also addresses the role of intermediaries in the insurance industry, cautioning consumers to be skeptical of information provided by agents due to potential conflicts of interest. The speaker highlights the importance of understanding policy terms and conditions, such as the free-look period and grace period, to avoid costly mistakes.

15:09

🔍 Navigating the Complexities of Insurance Policies

This part of the script discusses the importance of being truthful in insurance applications to avoid disputes and the potential for fraud or misrepresentation. It also covers the misconceptions around nomination rules in life insurance, explaining the difference between a nominee and the legal heirs. The speaker advises policyholders to align their nominations with their will to prevent disputes. Additionally, it touches on the 'Rule of 4' for informing loved ones about life insurance policies and the mathematical fallacy of 'return of premium' policies.

💼 The Reality of ULIPs and Group Life Insurance

The final section of the script focuses on Unit Linked Insurance Plans (ULIPs), discussing the controversy surrounding them and the importance of understanding the charges and expenses associated with them. It also addresses the marketing tactics used to promote 'loyalty additions' and the potential for these to be misleading. The script concludes with a discussion on group life insurance policies, cautioning consumers about the differences between group and retail policies and the potential for misunderstandings that can lead to coverage gaps.

Keywords

💡Life Insurance Blunders

This term refers to the mistakes made by individuals when dealing with life insurance policies. In the video, it is the central theme around which the content is structured, highlighting common and uncommon errors that people make in the context of buying, managing, or claiming life insurance policies.

💡IRDAI

The Insurance Regulatory and Development Authority of India (IRDAI) is the regulatory body for the insurance and reinsurance industry in India. The video mentions IRDAI in the context of the rules and regulations governing life insurance policies and how they can protect consumers from certain mistakes.

💡ULIPs

Unit Linked Insurance Plans (ULIPs) are a type of life insurance product that combines a life insurance policy with an investment portfolio. The script discusses the complexities and potential misunderstandings related to ULIPs, emphasizing the importance of understanding the charges and returns associated with these plans.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The video script uses the concept of inflation to illustrate how the real value of a life insurance policy's sum assured can decrease over time if not accounted for, leading to a potential shortfall in coverage.

💡Grace Period

A grace period in the context of life insurance refers to the additional time allowed to policyholders to pay their premiums after the due date without the policy lapsing. The video explains the importance of understanding the grace period and its implications on policy coverage and claims.

💡Policy Lapse

Policy lapse occurs when a life insurance policy is terminated due to non-payment of premiums. The script discusses the consequences of policy lapse, including the loss of benefits and the challenges of reviving a lapsed policy, emphasizing the need for awareness to avoid such a situation.

💡Indisputability Clause

The indisputability clause, as per Section 45, is a legal provision that prevents insurers from disputing a claim based on inaccurate or false statements made by the policyholder after two years of issuing the policy. The video clarifies common misunderstandings regarding this clause and its exceptions.

💡Nomination Rules

Nomination rules pertain to the process of designating a beneficiary to receive the proceeds of a life insurance policy upon the policyholder's death. The script explains the potential pitfalls of misunderstanding the role of a nominee and the importance of aligning nominations with one's legal heirs to avoid disputes.

💡Return of Premium

The 'return of premium' feature in life insurance policies is a benefit where the premiums paid by the policyholder are returned if the insured survives the policy term. The video script critiques this feature from a financial perspective, suggesting that the returned amount may not hold the same value due to inflation and could be better invested elsewhere.

💡Zero Cost Term Insurance

Zero cost term insurance is a variant of life insurance where the policyholder can reclaim all premiums paid after reaching a certain point during the policy term. The script describes this as a marketing strategy that may not provide the financial value it appears to, due to the time value of money.

💡Group Life Insurance Policies

Group life insurance policies are coverage provided to a group of people, often as an employee benefit. The video highlights the differences between group and retail life insurance policies, such as coverage expiration upon leaving the group and variable renewal premiums, cautioning viewers against mistaking one for the other.

Highlights

The video discusses the biggest life insurance blunders and provides a comprehensive picture of common mistakes.

Mistakes covered include issues during policy buying, managing, and claiming, spanning various types of insurance plans.

Common mistakes like insufficient coverage are deliberately left out to focus on less obvious errors.

The importance of understanding the actual return on life insurance policies and the impact of marketing on consumer perception.

The often-overlooked effect of inflation on the real value of life insurance coverage.

Solutions to combat inflation's erosion on life insurance value, such as additional policies or those with an accelerating sum assured.

The misconception of endowment policies as a short-term investment alternative to fixed deposits.

The role of intermediaries in the insurance industry and the potential bias due to their income being linked to policy sales.

The importance of understanding the terms and conditions of life insurance policies, especially the free-look period and its financial implications.

The common misunderstanding about the grace period for premium payment and its impact on policy lapse and claims.

The significance of the indisputability clause and its exceptions after two years of policy issuance.

The proper understanding of nomination rules in life insurance and the distinction between a nominee and legal heirs.

The 'Rule of 4' concept to ensure loved ones are aware of one's life insurance policy.

The critique of 'return of premium' feature in term insurance and its actual value considering inflation.

The comparison between different variants of term insurance plans and the importance of mathematical understanding in choosing the right one.

The detailed explanation of ULIPs, their charges, and the importance of being aware of the expenses involved.

The critique of 'loyalty additions' in ULIPs as a marketing strategy and its actual impact on policyholder returns.

The differences between group life insurance policies and retail ones, and the unique considerations for each.

Transcripts

So inspite of what the thumbnail says – I won’t  be talking about my life’s biggest mistakes

Instead we’ll do something more relevant as  we look at the biggest life insurance blunders

These are mistakes I have made in  the past and I’ll also source a  

few from some emails I have received  & also websites like mouthshut.com,  

google reviews etc. to have a more comprehensive  picture of where people are going wrong

Now these mistakes could  have happened while buying,  

managing or claiming the  policy, so I’ll cover all three

This won’t be just term insurance specific

I know there’s already a lot of  content on term, so I’ll include ULIPs,  

traditional plans like moneyback, endowment  and also group life insurance policies

To the extent possible, I’ll leave out the common  ones so mistakes like insufficient coverage,  

a delay in the purchase, not updating the policy,  

not disclosing health conditions etc. and  instead, I’ll be covering the more uncommon  

mistakes that surprisingly we all make  either accidentally or by way of ignorance

And finally & wherever possible,  I’ll also tell you what the law,  

the IRDAI has to say on it and how we can  protect ourselves against these mistakes

The list isn’t small

I found atleast 11 mistakes, 11  uncommon mistakes and I’m pretty sure,  

you too will be guilty of committing  atleast 2 or 3 of these blunders

So keep a count of your mistakes, let  me know in the comments and let’s begin

OK so this is not uncommon, it’s a  very common mistake and I’m certain  

many of you watching this video have  been a victim of this with some of  

us still carrying those policies  like an albatross around your neck

The problem starts from the way these policies are  marketed. I mean, picture this for a proposition –

“You pay 1 lakh rupees for the next 10  years and then from the end of 12th year,  

you’ll receive 1 lakh rupees  every year for the next 50 years”

Now I don’t know if there’s actually  a plan like this but if there is,  

then pitching something like this to any  regular person is frankly a piece of cake

But you show this same construct to a  mathematician and he or she would – “Kya  

bakwaas plan hai. This doesn’t even cover  inflation. It’s an IRR of just 6.3%”

Ofcourse I must add that this return  of 6.3 is guaranteed, so that’s good

And and it’s also tax-free  so these two advantages have  

to be considered alongside the 6.3% return number

But irrespective the point I want to stress  here is that policyholders often misread the  

return component of these policies which  is typically between 4 & 6% because of the  

way it’s marketed and once we realize it, it  leads to a lot of disappointment and regret

My point is – such situations are definitely  avoidable with some simple mathematics and  

basic research on the Internet so if you haven’t  been doing it yet, please don’t skip this part

Now one of the plus-points of any  life insurance policy is that the  

premium remains constant for a pretty  long time and so does the sum assured

But if we think more realistically our sum assured  

is actually going down & that’s  entirely on account of inflation

Just to put that in numbers –  a crore of sum assured today  

is probably worth 13 lakh rupees at an  inflation rate of 7% 30 years from now

So the mistake most of us end up making is,  we fail to account for inflation eroding the  

real value of sum assured over time  which means there’s actually a gap,  

a significant shortfall with respect  to the future financial needs of the  

family which starts from the day  we buy a life insurance policy

I think a lot of us including me, have  been ignoring this and as a solution one  

can either take a second term insurance  policy after a few years like I have done  

or you can also opt for policies which  have an accelerating sum assured feature  

i.e. your life insurance coverage keeps  increasing every year by say 5% or something

I think some companies have this option and if  you’re keen on getting more information on this  

then I’ll suggest you book one of those free 30  minute consultation calls with the folks at Ditto

It’s a service even I availed a few months  back when I was confused on whether I should  

port my health insurance policy or not and  the advisor’s suggestion really helped me

Infact I was pleasantly surprised that:

They didn’t try to sell me anything

My problem was resolved in the first call itself

The agent did not call me a second  time attempting to cross-sell something

There was no pushing, shoving, emotional atyachaar

Believe me, it was an  absolutely wonderful experience

So if you haven’t tried Ditto, do try them out  and if you’ve interacted with any other agent  

from somewhere else in the past, you’ll  now know what a delightful interaction is

As always, the booking link is  available in the video’s description

Oh, this is a bad one and one blunder  I came across is where a policyholder  

purchases an endowment policy believing it to  

be a viable solution for his or  her short term parking of money

Now, the reason this happens is because many of  us substitute a traditional life insurance policy  

or if we don’t do it ourselves, we are told  by our neighbourhood LIC-wale uncle that this  

policy is a good alternative for a fixed deposit  or better still, it’s a tax-free fixed deposit

Now this is still fine if you’re a super  conservative person and your investment  

window is a good 10, 15 years from now  but if the tenure you’re looking for is  

2 or 3 years then an endowment policy is an  absolute non-starter as all such policies  

are for atleast 5 years with typical  maturities ranging from 10 to 20 years

So it’s mostly a case of mis-selling but as a  thumbrule – any life insurance policy that has  

an investment element to it, so an endowment,  moneyback, annuity or even a ULIP – they all  

require a long-term commitment not just by  law but also for it to be financially viable

So kindly watch out for that and please ensure  

none of your friends or family  members are making this mistake

Intermediaries play a big role in  the insurance industry in not only  

distributing policies but also spreading awareness

Typical questions from any consumer would  revolve around the different types of policies

Specifics, the nuances of each policy

The plan’s suitability based on individual needs

Policy riders

Coverage options

Premium calculation

Policy purchase

Endorsements

Renewals and much much more

Agents, brokers, online aggregators – while  they add a lot of value to the process one must  

still remember, because the intermediary’s  income is linked to the sale of a policy,  

there’s that in-built incentive to provide only  that part of the information that suits them

For example – when selling a ULIP  policy, while every agent will  

talk for hours about how the fund has performed

20% growth over the last 5 years

India is growing

Production linked incentives

Infrastructure blah blah blah

But do notice they’ll be very cagey when you  start seeking information on things like the  

premium allocation charges, the surrender value  of the policy, mortality rate and stuff like that

That being said we, as consumers  although we are very trusting,  

we also have to be a little practical  here or rather, it would be a mistake  

on our part to not do our research and  to take the intermediaries word for it

And what I’m saying extends to everyone —  agents, the insurance company call-centre,  

brokers and even Ditto – although knowing  Ditto, I’m certain they’ll encourage you  

to do as much research as you want  before deciding to work with them

OK, now let’s go deeper into the policies and  

especially the terms & conditions which  is where a bulk of the mistakes happen

My first area of inquisition is the  free-look period and unfortunately,  

most policyholders mistakenly believe  that they can cancel their life  

insurance policy during this period  – without any financial implications

Well, that’s not true because while the insurance  regulator mandates a free look period of 30 days  

beginning from the date of receipt of the policy  document upon cancellation during this period,  

the rules allow the insurer to deduct certain  expenses while calculating the refundable amount

Specifically, there are 3 key charges  that the insurer can withhold –

The proportionate risk premium so if  the policy has run for 20 days then  

the insurer can deduct the risk premium, the  mortality charge pertaining to those 20 days

The insurer can also deduct the stamp duty

And thirdly, the cost of any medical  examination that the insurer had conducted

I don’t think any agent or even any marketing  material issued by a life insurance company talks  

about this, they’ll just majestically say “there’s  a 30-day free look period” but when the refunded  

money comes back with these deductions, then  obviously the policyholder is pretty dissatisfied

So jagruk baniye

Jagruk janta as my friends at  Labour Law Advisor would say it

Another relatable T&C mistake in on  the grace period and policy lapses

Infact, I’ll say there are  two kinds of policyholders

The first kind is someone who isn’t  aware of anything including the fact  

that the policy lapses if one doesn’t  pay the premium, that he or she might  

lose all benefits & the revival process is not  guaranteed and that every life insurance policy  

offers a grace period of 15 to 30 days  depending on the mode of premium payment

Then the second set of policyholders are those  who are aware of a policy lapse & the grace period  

offered but have seriously misjudged the impact  of this lapse in terms of coverage and claims

For instance – if a death claim happens during the  grace period, the life insurer generally allows  

it but if the policy was lapsed, then there’s  almost no chance of receiving the death benefit

Likewise, reviving a lapsed policy is not easy

It requires medical re-examinations & this  cost has to be borne by the policyholder

The premiums might be bumped  up if something comes up

And it can go to extent that the  reinstatement itself might also be denied

Now imagine getting into a reinstatement-denied  kind of situation when you’re much older, say 50  

years old, because if you have to enroll into  a new term insurance plan now then the premium  

will be like 3 times more as compared to when you  initially bought it, lets say at the age of 30

As you see here, this mistake can be  a rather costly one so kindly avoid  

it by simply setting up an e-mandate or  keeping renewal reminders on your computer

Speaking of which I hope you’ve  noticed my newsletters have restarted

I’m publishing one every week, mostly  on a Thursday and the response,  

the discussions around it  have been very heartening

The community is big now almost 30,000 subscribers  and thank you everyone for the kind messages and  

if you’re finding my work useful then please  do share it with your friends and connections

Right, so the indisputability clause is something  many of us know and according to Section 45,  

insurers cannot question a  policyholder’s declaration  

citing inaccurate or false statements  made in the application or any report  

by the medical officer after  two years of issuing the policy

So this Section 45 is very helpful  for policyholders like you & me,  

it gives us some protection and this protection  is primarily to ensure insurers do not randomly  

or indiscriminately dismiss claims on the grounds  of inaccurate declaration by the policyholder

Now the common mistake or rather the uncommon  mistake is when a policyholder believes that  

after the two-year incontestability  period – no insurer can dispute a claim

The truth is there are exceptions and  an insurer can definitely challenge a  

claim especially in the event of a fraud and  also in case of material misrepresentation

Some examples would include things like –

Falsification of age because the  applicant wanted to pay a lower premium

Non-disclosure of serious pre-existing  medical conditions like a heart disease  

or cancer at the time of purchasing the policy

False information about occupation  like claiming to be in a low-risk job

Claiming to not smoke or consume  alcohol and stuff like that

Now the best way to avoid this particular  situation is to be 100% truthful when filling  

out your application form and if you have the  slightest doubt then please consult an experienced  

operator like Ditto who can guide you through  the steps and help you take corrective action

Yet another uncommon mistake  is our understanding or rather  

the misunderstanding of the nomination rules

You see policyholders often nominate  someone typically the spouse or their  

children as the policy’s beneficiary  without understanding that a nominee  

is not necessarily the final recipient  of the insurance proceeds and that the  

legal heirs are well within their right  to contest this out in a court of law

Infact there have been numerous court cases  where nominees were denied payouts in favor  

of the legal heirs and if you’re wondering why,  then according to the IRDAI or maybe it’s one  

of the courts say this but according to them – a  nominee merely acts as a trustee or a custodian  

to receive the death benefit on behalf of the  legal heirs unless specifically stated otherwise

So as a policyholder, it is  critical to align your policy  

nomination with one’s will & legal  heirs to avoid any disputes later

This will require you to regularly review  and update your nominations particularly  

after major life changes like marriage,  death of a parent, having a childbirth etc.

Remember, if your intention is for  the nominee to be the final recipient,  

this should be explicitly mentioned in the  policy documentation to avoid any ambiguity

Relatably, when did this podcast with  Shrehith a few months back I recall  

him mentioning something called a “Rule of 4”

So essentially and I’m assuming Ditto  says this to all their customers –  

there 4 people who should know  about your life insurance plan

Your parents especially if you’re unmarried

Your spouse, very important

A cousin who is of a similar age as you

And also a family friend who is  also somewhere around your age

I think this “Rule of 4” is a good  thing to have so do make sure your  

loved ones know about your life insurance policy

Right so when it comes to term insurance,  

the “return of premium” feature attracts  many individuals who believe it to be a  

better deal since they get their premiums  back if they survive the policy term

But when one looks at it mathematically  – what are we exactly doing?

For example - a regular term insurance policy  with a term of 30 years for a 25-year old would  

cost an annual premium of 10,000 rupees  for a 1 crore sum assured while the same  

1-crore policy under a “return of premium”  variant would come at 20,000 rupees per annum

So figure this – we’re buying life insurance for  

the next 30 years and we’re OK to pay  double the premium during this time

But when we get back the premium i.e. 20000  multiplied by 30 – so 6 lakh rupees – and  

assuming a 7% inflation, what we actually  get back is actually worth just 78,000 rupees

It’s something worth thinking about and I’m  sure all of you know this part that instead,  

if one had applied that additional  10,000 rupees on a pure investment  

product like say a flexicap fund, the  results would have been far better

Now, a recent variant of the “return of  premium” feature is – zero cost term insurance

The concept of a zero cost term plan is very  similar to an ROP but it’s definitely better  

given the fact that firstly, one doesn’t  have to pay almost twice the premium as  

was the case with ROP and secondly, the  policyholder can reclaim all premiums paid  

after he or she has reached a pre-determined  point during the policy term so basically,  

the policyholder doesn’t need to  wait until the completion of term

Essentially, there’s an exit value option  that’s available but honestly in my view,  

this is just a mind game and it doesn’t negate  the fact that the premium you receive 20,  

30 years from now has so much less  value than the premium you pay today

Yes, it’s a good marketing ploy that’ll  attract customers but that’s just about  

it and eventually some basic mathematics  will help you understand which variant of  

the term plan – the seedha-saral  regular term plan or the return  

of premium or the zero cost plan –  which of these three is best for you

OK, now let’s look at ULIPs

Unit Linked Insurance Plans —  probably the most controversial  

word in the insurance space and there’s  definitely a reason for this animosity

I remember, when I was first told  to sell ULIPs way back in 2004,  

when the premium allocation charge for the  first year was a whooping 36% and that’s not all

There were deductions made for policy  administration, fund management charges,  

mortality which is OK, it makes sense but  then there were also switching charges,  

surrender charges, partial withdrawal  charge, discontinuance charge and much more

Now although modern-day ULIPs  have dramatically improved their  

charge structure, it is still the  policyholder’s responsibility to  

be aware of what is being charged and  what’s the impact of those expenses

For instance if a ULIP were to knock off 36% of  your investment in the first year or if not 36,  

even if it was 5%, that’s a good 5%  lower returns that your corpus might  

achieve in that year and since ULIPs are  long term investments, that gap of 5, 4,  

3 or whatever percent can amount to a lot of money

OK now that I’ve said it, many of the recent  ULIP offerings have what’s called “loyalty  

additions” which is marketed as something that  can significantly boost one’s ULIP returns

But the truth is – there is nothing  significant about them and secondly,  

not many policyholders are aware of how it works

I mean – it sounds good, right? Loyalty addition

But if goes a layer deep then it’s  nothing more than a marketing stunt  

that’s designed to stop you  from surrendering your policy

The more you stay, the better it is for the  insurance company but for a policyholder,  

it might mean remaining stuck in an inefficient  product just because of these sweet nothings

The final mistake I want to highlight in this  video pertains to group life insurance policies

This is important because what was earlier seen  only with banking partners or NBFCs, I’m now  

seeing a rising trend of life insurance companies  working with fintechs to create custom group plans

I know this because when I was working  at ET Money a dozen or more life insurers  

would have approached me to design  & distribute a group insurance plan  

which obviously I didn’t agree to, the  reason being – a group life insurance  

policy does not carry all of the same  rules that applies to a retail policy

I have listed some of differences on the  screen here but look at this – so firstly,  

the life insurance coverage expires  when you leave the group or if the group  

ceases to exist unless a conversion  option is provided by the insurer

Another important point is on the renewal premium  and while the amount remains constant in a retail  

policy, this number can vary in a group plan  based on how the organization negotiates it

There are many more differences but my  point is – a majority of policyholders  

mistake a group life insurance  plan for a retail one and often  

assume that everything is exactly the  same which in reality is not the case

And with this uncommon mistake,  we come to the end of this video

I sincerely hope you found these  insights useful and you’ll take  

extra care & caution when evaluating insurance  policies, when working with intermediaries,  

when it comes to reading the rules, terms  & conditions and when selecting products

Take help wherever and whenever you are stuck,  

there are people writing good blogs & articles  on the subject and there’s always Ditto – a  

great platform to not just buy policies  but also to get your doubts clarified

Just to recap:

Ditto is India's highest-rated  Insurance Advisor with a rating  

score of 4.9 from 8,000+ reviews on Google

They are backed by Zerodha

Ditto has been named LinkedIn Top  Start-up for two years in a row

They have invested in a strong  claim support team and much more

You can always book a free call  with them but do that quickly  

as the slots are limited & from what  I’ve seen, they run-out pretty quick

Once again, thank you for your time,  

do like this video, subscribe to my  newsletter and I’ll see you very soon

Until then