11 Life Insurance Mistakes & How to Avoid Them
Summary
TLDRThis 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
- š Life insurance policies are often misunderstood due to aggressive marketing, leading to disappointment when the actual returns are lower than expected.
- š” 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.
- š The misconception that life insurance premiums remain static hides the reality that the sum assured decreases in real terms over time due to inflation.
- š« Endowment policies are often incorrectly sold as short-term financial instruments, which is misleading as they are designed for long-term commitments.
- š¼ Intermediaries in the insurance industry, while valuable, may sometimes provide biased information due to their income being tied to policy sales.
- ā³ Many policyholders are unaware of the financial implications of the free-look period and the deductions that can be made during policy cancellation.
- š The grace period for premium payment is commonly misunderstood, with some not realizing the consequences of policy lapse and the difficulty of revival.
- š« The indisputability clause (Section 45)čÆÆåŗå°č¢«č®¤äøŗęÆę ę”件ēäæę¤ļ¼ä½å®é äøåØę¬ŗčÆęé大čÆÆē³ę„ēę åµäøļ¼äæé©å ¬åøä»ē¶åÆ仄ęęē“¢čµć
- š Nomination rules are often misinterpreted, with nominees not necessarily being the final recipients of insurance proceeds, which can lead to legal disputes.
- š 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.
- š ULIPs have improved their charge structure, but policyholders must still be vigilant about the various charges and their impact on long-term returns.
- š„ 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
š 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.
š” 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.
ā 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.
š 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.
š¼ 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.
Mindmap
Keywords
š”Life Insurance Blunders
š”IRDAI
š”ULIPs
š”Inflation
š”Grace Period
š”Policy Lapse
š”Indisputability Clause
š”Nomination Rules
š”Return of Premium
š”Zero Cost Term Insurance
š”Group Life Insurance Policies
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 ā I wonātĀ be talking about my lifeās biggest mistakes
Instead weāll do something more relevant asĀ we look at the biggest life insurance blunders
These are mistakes I have made inĀ the past and Iāll also source aĀ Ā
few from some emails I have receivedĀ & also websites like mouthshut.com,Ā Ā
google reviews etc. to have a more comprehensiveĀ picture of where people are going wrong
Now these mistakes couldĀ have happened while buying,Ā Ā
managing or claiming theĀ policy, so Iāll cover all three
This wonāt be just term insurance specific
I know thereās already a lot ofĀ content on term, so Iāll include ULIPs,Ā Ā
traditional plans like moneyback, endowmentĀ and also group life insurance policies
To the extent possible, Iāll leave out the commonĀ ones so mistakes like insufficient coverage,Ā Ā
a delay in the purchase, not updating the policy,Ā Ā
not disclosing health conditions etc. andĀ instead, Iāll be covering the more uncommonĀ Ā
mistakes that surprisingly we all makeĀ either accidentally or by way of ignorance
And finally & wherever possible,Ā Iāll also tell you what the law,Ā Ā
the IRDAI has to say on it and how we canĀ protect ourselves against these mistakes
The list isnāt small
I found atleast 11 mistakes, 11Ā uncommon mistakes and Iām pretty sure,Ā Ā
you too will be guilty of committingĀ atleast 2 or 3 of these blunders
So keep a count of your mistakes, letĀ me know in the comments and letās begin
OK so this is not uncommon, itās aĀ very common mistake and Iām certainĀ Ā
many of you watching this video haveĀ been a victim of this with some ofĀ Ā
us still carrying those policiesĀ like an albatross around your neck
The problem starts from the way these policies areĀ marketed. I mean, picture this for a proposition ā
āYou pay 1 lakh rupees for the next 10Ā years and then from the end of 12th year,Ā Ā
youāll receive 1 lakh rupeesĀ every year for the next 50 yearsā
Now I donāt know if thereās actuallyĀ a plan like this but if there is,Ā Ā
then pitching something like this to anyĀ regular person is frankly a piece of cake
But you show this same construct to aĀ mathematician and he or she would ā āKyaĀ Ā
bakwaas plan hai. This doesnāt even coverĀ inflation. Itās an IRR of just 6.3%ā
Ofcourse I must add that this returnĀ of 6.3 is guaranteed, so thatās good
And and itās also tax-freeĀ so these two advantages haveĀ Ā
to be considered alongside the 6.3% return number
But irrespective the point I want to stressĀ here is that policyholders often misread theĀ Ā
return component of these policies whichĀ is typically between 4 & 6% because of theĀ Ā
way itās marketed and once we realize it, itĀ leads to a lot of disappointment and regret
My point is ā such situations are definitelyĀ avoidable with some simple mathematics andĀ Ā
basic research on the Internet so if you havenātĀ been doing it yet, please donāt skip this part
Now one of the plus-points of anyĀ life insurance policy is that theĀ Ā
premium remains constant for a prettyĀ long time and so does the sum assured
But if we think more realistically our sum assuredĀ Ā
is actually going down & thatāsĀ entirely on account of inflation
Just to put that in numbers āĀ a crore of sum assured todayĀ Ā
is probably worth 13 lakh rupees at anĀ inflation rate of 7% 30 years from now
So the mistake most of us end up making is,Ā we fail to account for inflation eroding theĀ Ā
real value of sum assured over timeĀ which means thereās actually a gap,Ā Ā
a significant shortfall with respectĀ to the future financial needs of theĀ Ā
family which starts from the dayĀ we buy a life insurance policy
I think a lot of us including me, haveĀ been ignoring this and as a solution oneĀ Ā
can either take a second term insuranceĀ policy after a few years like I have doneĀ Ā
or you can also opt for policies whichĀ have an accelerating sum assured featureĀ Ā
i.e. your life insurance coverage keepsĀ increasing every year by say 5% or something
I think some companies have this option and ifĀ youāre keen on getting more information on thisĀ Ā
then Iāll suggest you book one of those free 30Ā minute consultation calls with the folks at Ditto
Itās a service even I availed a few monthsĀ back when I was confused on whether I shouldĀ Ā
port my health insurance policy or not andĀ the advisorās suggestion really helped me
Infact I was pleasantly surprised that:
They didnāt try to sell me anything
My problem was resolved in the first call itself
The agent did not call me a secondĀ time attempting to cross-sell something
There was no pushing, shoving, emotional atyachaar
Believe me, it was anĀ absolutely wonderful experience
So if you havenāt tried Ditto, do try them outĀ and if youāve interacted with any other agentĀ Ā
from somewhere else in the past, youāllĀ now know what a delightful interaction is
As always, the booking link isĀ available in the videoās description
Oh, this is a bad one and one blunderĀ I came across is where a policyholderĀ Ā
purchases an endowment policy believing it toĀ Ā
be a viable solution for his orĀ her short term parking of money
Now, the reason this happens is because many ofĀ us substitute a traditional life insurance policyĀ Ā
or if we donāt do it ourselves, we are toldĀ by our neighbourhood LIC-wale uncle that thisĀ Ā
policy is a good alternative for a fixed depositĀ or better still, itās a tax-free fixed deposit
Now this is still fine if youāre a superĀ conservative person and your investmentĀ Ā
window is a good 10, 15 years from nowĀ but if the tenure youāre looking for isĀ Ā
2 or 3 years then an endowment policy is anĀ absolute non-starter as all such policiesĀ Ā
are for atleast 5 years with typicalĀ maturities ranging from 10 to 20 years
So itās mostly a case of mis-selling but as aĀ thumbrule ā any life insurance policy that hasĀ Ā
an investment element to it, so an endowment,Ā moneyback, annuity or even a ULIP ā they allĀ Ā
require a long-term commitment not just byĀ law but also for it to be financially viable
So kindly watch out for that and please ensureĀ Ā
none of your friends or familyĀ members are making this mistake
Intermediaries play a big role inĀ the insurance industry in not onlyĀ Ā
distributing policies but also spreading awareness
Typical questions from any consumer wouldĀ revolve around the different types of policies
Specifics, the nuances of each policy
The planās suitability based on individual needs
Policy riders
Coverage options
Premium calculation
Policy purchase
Endorsements
Renewals and much much more
Agents, brokers, online aggregators ā whileĀ they add a lot of value to the process one mustĀ Ā
still remember, because the intermediaryāsĀ income is linked to the sale of a policy,Ā Ā
thereās that in-built incentive to provide onlyĀ that part of the information that suits them
For example ā when selling a ULIPĀ policy, while every agent willĀ Ā
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 theyāll be very cagey when youĀ start seeking information on things like theĀ Ā
premium allocation charges, the surrender valueĀ of the policy, mortality rate and stuff like that
That being said we, as consumersĀ although we are very trusting,Ā Ā
we also have to be a little practicalĀ here or rather, it would be a mistakeĀ Ā
on our part to not do our research andĀ to take the intermediaries word for it
And what Iām saying extends to everyone āĀ agents, the insurance company call-centre,Ā Ā
brokers and even Ditto ā although knowingĀ Ditto, Iām certain theyāll encourage youĀ Ā
to do as much research as you wantĀ before deciding to work with them
OK, now letās go deeper into the policies andĀ Ā
especially the terms & conditions whichĀ is where a bulk of the mistakes happen
My first area of inquisition is theĀ free-look period and unfortunately,Ā Ā
most policyholders mistakenly believeĀ that they can cancel their lifeĀ Ā
insurance policy during this periodĀ ā without any financial implications
Well, thatās not true because while the insuranceĀ regulator mandates a free look period of 30 daysĀ Ā
beginning from the date of receipt of the policyĀ document upon cancellation during this period,Ā Ā
the rules allow the insurer to deduct certainĀ expenses while calculating the refundable amount
Specifically, there are 3 key chargesĀ that the insurer can withhold ā
The proportionate risk premium so ifĀ the policy has run for 20 days thenĀ Ā
the insurer can deduct the risk premium, theĀ mortality charge pertaining to those 20 days
The insurer can also deduct the stamp duty
And thirdly, the cost of any medicalĀ examination that the insurer had conducted
I donāt think any agent or even any marketingĀ material issued by a life insurance company talksĀ Ā
about this, theyāll just majestically say āthereāsĀ a 30-day free look periodā but when the refundedĀ Ā
money comes back with these deductions, thenĀ obviously the policyholder is pretty dissatisfied
So jagruk baniye
Jagruk janta as my friends atĀ Labour Law Advisor would say it
Another relatable T&C mistake in onĀ the grace period and policy lapses
Infact, Iāll say there areĀ two kinds of policyholders
The first kind is someone who isnātĀ aware of anything including the factĀ Ā
that the policy lapses if one doesnātĀ pay the premium, that he or she mightĀ Ā
lose all benefits & the revival process is notĀ guaranteed and that every life insurance policyĀ Ā
offers a grace period of 15 to 30 daysĀ depending on the mode of premium payment
Then the second set of policyholders are thoseĀ who are aware of a policy lapse & the grace periodĀ Ā
offered but have seriously misjudged the impactĀ of this lapse in terms of coverage and claims
For instance ā if a death claim happens during theĀ grace period, the life insurer generally allowsĀ Ā
it but if the policy was lapsed, then thereāsĀ almost no chance of receiving the death benefit
Likewise, reviving a lapsed policy is not easy
It requires medical re-examinations & thisĀ cost has to be borne by the policyholder
The premiums might be bumpedĀ up if something comes up
And it can go to extent that theĀ reinstatement itself might also be denied
Now imagine getting into a reinstatement-deniedĀ kind of situation when youāre much older, say 50Ā Ā
years old, because if you have to enroll intoĀ a new term insurance plan now then the premiumĀ Ā
will be like 3 times more as compared to when youĀ initially bought it, lets say at the age of 30
As you see here, this mistake can beĀ a rather costly one so kindly avoidĀ Ā
it by simply setting up an e-mandate orĀ keeping renewal reminders on your computer
Speaking of which I hope youāveĀ noticed my newsletters have restarted
Iām publishing one every week, mostlyĀ on a Thursday and the response,Ā Ā
the discussions around itĀ have been very heartening
The community is big now almost 30,000 subscribersĀ and thank you everyone for the kind messages andĀ Ā
if youāre finding my work useful then pleaseĀ do share it with your friends and connections
Right, so the indisputability clause is somethingĀ many of us know and according to Section 45,Ā Ā
insurers cannot question aĀ policyholderās declarationĀ Ā
citing inaccurate or false statementsĀ made in the application or any reportĀ Ā
by the medical officer afterĀ two years of issuing the policy
So this Section 45 is very helpfulĀ for policyholders like you & me,Ā Ā
it gives us some protection and this protectionĀ is primarily to ensure insurers do not randomlyĀ Ā
or indiscriminately dismiss claims on the groundsĀ of inaccurate declaration by the policyholder
Now the common mistake or rather the uncommonĀ mistake is when a policyholder believes thatĀ Ā
after the two-year incontestabilityĀ period ā no insurer can dispute a claim
The truth is there are exceptions andĀ an insurer can definitely challenge aĀ Ā
claim especially in the event of a fraud andĀ also in case of material misrepresentation
Some examples would include things like ā
Falsification of age because theĀ applicant wanted to pay a lower premium
Non-disclosure of serious pre-existingĀ medical conditions like a heart diseaseĀ Ā
or cancer at the time of purchasing the policy
False information about occupationĀ like claiming to be in a low-risk job
Claiming to not smoke or consumeĀ alcohol and stuff like that
Now the best way to avoid this particularĀ situation is to be 100% truthful when fillingĀ Ā
out your application form and if you have theĀ slightest doubt then please consult an experiencedĀ Ā
operator like Ditto who can guide you throughĀ the steps and help you take corrective action
Yet another uncommon mistakeĀ is our understanding or ratherĀ Ā
the misunderstanding of the nomination rules
You see policyholders often nominateĀ someone typically the spouse or theirĀ Ā
children as the policyās beneficiaryĀ without understanding that a nomineeĀ Ā
is not necessarily the final recipientĀ of the insurance proceeds and that theĀ Ā
legal heirs are well within their rightĀ to contest this out in a court of law
Infact there have been numerous court casesĀ where nominees were denied payouts in favorĀ Ā
of the legal heirs and if youāre wondering why,Ā then according to the IRDAI or maybe itās oneĀ Ā
of the courts say this but according to them ā aĀ nominee merely acts as a trustee or a custodianĀ Ā
to receive the death benefit on behalf of theĀ legal heirs unless specifically stated otherwise
So as a policyholder, it isĀ critical to align your policyĀ Ā
nomination with oneās will & legalĀ heirs to avoid any disputes later
This will require you to regularly reviewĀ and update your nominations particularlyĀ Ā
after major life changes like marriage,Ā death of a parent, having a childbirth etc.
Remember, if your intention is forĀ the nominee to be the final recipient,Ā Ā
this should be explicitly mentioned in theĀ policy documentation to avoid any ambiguity
Relatably, when did this podcast withĀ Shrehith a few months back I recallĀ Ā
him mentioning something called a āRule of 4ā
So essentially and Iām assuming DittoĀ says this to all their customers āĀ Ā
there 4 people who should knowĀ about your life insurance plan
Your parents especially if youāre unmarried
Your spouse, very important
A cousin who is of a similar age as you
And also a family friend who isĀ also somewhere around your age
I think this āRule of 4ā is a goodĀ thing to have so do make sure yourĀ Ā
loved ones know about your life insurance policy
Right so when it comes to term insurance,Ā Ā
the āreturn of premiumā feature attractsĀ many individuals who believe it to be aĀ Ā
better deal since they get their premiumsĀ back if they survive the policy term
But when one looks at it mathematicallyĀ ā what are we exactly doing?
For example - a regular term insurance policyĀ with a term of 30 years for a 25-year old wouldĀ Ā
cost an annual premium of 10,000 rupeesĀ for a 1 crore sum assured while the sameĀ Ā
1-crore policy under a āreturn of premiumāĀ variant would come at 20,000 rupees per annum
So figure this ā weāre buying life insurance forĀ Ā
the next 30 years and weāre OK to payĀ double the premium during this time
But when we get back the premium i.e. 20000Ā multiplied by 30 ā so 6 lakh rupees ā andĀ Ā
assuming a 7% inflation, what we actuallyĀ get back is actually worth just 78,000 rupees
Itās something worth thinking about and IāmĀ sure all of you know this part that instead,Ā Ā
if one had applied that additionalĀ 10,000 rupees on a pure investmentĀ Ā
product like say a flexicap fund, theĀ results would have been far better
Now, a recent variant of the āreturn ofĀ premiumā feature is ā zero cost term insurance
The concept of a zero cost term plan is veryĀ similar to an ROP but itās definitely betterĀ Ā
given the fact that firstly, one doesnātĀ have to pay almost twice the premium asĀ Ā
was the case with ROP and secondly, theĀ policyholder can reclaim all premiums paidĀ Ā
after he or she has reached a pre-determinedĀ point during the policy term so basically,Ā Ā
the policyholder doesnāt need toĀ wait until the completion of term
Essentially, thereās an exit value optionĀ thatās available but honestly in my view,Ā Ā
this is just a mind game and it doesnāt negateĀ the fact that the premium you receive 20,Ā Ā
30 years from now has so much lessĀ value than the premium you pay today
Yes, itās a good marketing ploy thatāllĀ attract customers but thatās just aboutĀ Ā
it and eventually some basic mathematicsĀ will help you understand which variant ofĀ Ā
the term plan ā the seedha-saralĀ regular term plan or the returnĀ Ā
of premium or the zero cost plan āĀ which of these three is best for you
OK, now letās look at ULIPs
Unit Linked Insurance Plans āĀ probably the most controversialĀ Ā
word in the insurance space and thereāsĀ definitely a reason for this animosity
I remember, when I was first toldĀ to sell ULIPs way back in 2004,Ā Ā
when the premium allocation charge for theĀ first year was a whooping 36% and thatās not all
There were deductions made for policyĀ administration, fund management charges,Ā Ā
mortality which is OK, it makes sense butĀ then there were also switching charges,Ā Ā
surrender charges, partial withdrawalĀ charge, discontinuance charge and much more
Now although modern-day ULIPsĀ have dramatically improved theirĀ Ā
charge structure, it is still theĀ policyholderās responsibility toĀ Ā
be aware of what is being charged andĀ whatās the impact of those expenses
For instance if a ULIP were to knock off 36% ofĀ your investment in the first year or if not 36,Ā Ā
even if it was 5%, thatās a good 5%Ā lower returns that your corpus mightĀ Ā
achieve in that year and since ULIPs areĀ long term investments, that gap of 5, 4,Ā Ā
3 or whatever percent can amount to a lot of money
OK now that Iāve said it, many of the recentĀ ULIP offerings have whatās called āloyaltyĀ Ā
additionsā which is marketed as something thatĀ can significantly boost oneās ULIP returns
But the truth is ā there is nothingĀ significant about them and secondly,Ā Ā
not many policyholders are aware of how it works
I mean ā it sounds good, right? Loyalty addition
But if goes a layer deep then itāsĀ nothing more than a marketing stuntĀ Ā
thatās designed to stop youĀ from surrendering your policy
The more you stay, the better it is for theĀ insurance company but for a policyholder,Ā Ā
it might mean remaining stuck in an inefficientĀ product just because of these sweet nothings
The final mistake I want to highlight in thisĀ video pertains to group life insurance policies
This is important because what was earlier seenĀ only with banking partners or NBFCs, Iām nowĀ Ā
seeing a rising trend of life insurance companiesĀ working with fintechs to create custom group plans
I know this because when I was workingĀ at ET Money a dozen or more life insurersĀ Ā
would have approached me to designĀ & distribute a group insurance planĀ Ā
which obviously I didnāt agree to, theĀ reason being ā a group life insuranceĀ Ā
policy does not carry all of the sameĀ rules that applies to a retail policy
I have listed some of differences on theĀ screen here but look at this ā so firstly,Ā Ā
the life insurance coverage expiresĀ when you leave the group or if the groupĀ Ā
ceases to exist unless a conversionĀ option is provided by the insurer
Another important point is on the renewal premiumĀ and while the amount remains constant in a retailĀ Ā
policy, this number can vary in a group planĀ based on how the organization negotiates it
There are many more differences but myĀ point is ā a majority of policyholdersĀ Ā
mistake a group life insuranceĀ plan for a retail one and oftenĀ Ā
assume that everything is exactly theĀ same which in reality is not the case
And with this uncommon mistake,Ā we come to the end of this video
I sincerely hope you found theseĀ insights useful and youāll takeĀ Ā
extra care & caution when evaluating insuranceĀ policies, when working with intermediaries,Ā Ā
when it comes to reading the rules, termsĀ & conditions and when selecting products
Take help wherever and whenever you are stuck,Ā Ā
there are people writing good blogs & articlesĀ on the subject and thereās always Ditto ā aĀ Ā
great platform to not just buy policiesĀ but also to get your doubts clarified
Just to recap:
Ditto is India's highest-ratedĀ Insurance Advisor with a ratingĀ Ā
score of 4.9 from 8,000+ reviews on Google
They are backed by Zerodha
Ditto has been named LinkedIn TopĀ Start-up for two years in a row
They have invested in a strongĀ claim support team and much more
You can always book a free callĀ with them but do that quicklyĀ Ā
as the slots are limited & from whatĀ Iāve seen, they run-out pretty quick
Once again, thank you for your time,Ā Ā
do like this video, subscribe to myĀ newsletter and Iāll see you very soon
Until then
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