INVESTING IN INSURANCE

INSURANCE is one of the key factor in financial planning but followed it wrongly .Thanks to insurance agents to make it possible.

In India, 90 % of insurance business is sold and not bought. We have huge insurance agent population and so called “Relationship Manager /Wealth Manager” from big banks, financial institutions spreading the general awareness about insurance. Everybody talks about innovative products, feature etc but sadly no one talk about the pure term insurance.

I would like to brief on how things have happened in insurance sector in last 5 -7 yrs

  • When family is blessed with a child in India, their insurance agents feel happier than them. Yes, it is time to sell child policy for agents .One of my friend called me the other day (he also blessed with a baby girl and asked me “I want to take a policy for my daughter”. It has become a trend because of policies like LIC Komal Jeevan,  HDFC youngstar. In most of the cases, life is assured for child not the parents, they are just the proposer .So it does not make any sense to buy such policy.
  • The most common trap is during financial year end i.e. during the tax filing .March is like Diwali season for Insurance agents. Our “Big Daddy” in insurance sector always launch new product for salaried and business class people during this period. People buy it for tax saving purpose rather than investment purpose hence does not know what they are buying.
  • In 2004, Insurance industry got the fantastic product called “ULIP”. It was sold in the market like hot cake “Sir, 3 saal hi bharana hai (need to make the payment for 3 yrs only). Market was also performing so fabulous return. Even for a unit linked pension plan, it is 3 yr and people also bought it. I do not how one can have retirement corpus generated for age 60 to 85 yr by making a payment for 3 yrs.

Today also I get queries about what should I do as I have paid it for 3 yrs. Ideally one should continue the policy now as in initial Year, Company and agents enjoy the benefit .Now, it is investors turn.

If you have got an agent or advisor asking you to make minimum 5-8 premiums payment and asking you to stay invested for 10 -15 yrs then you got a right product.

There are “n” numbers of sells stories wherein insurance products are sold on investment basis rather on insurance basis.

But still we have insurance companies making incremental numbers in ULIP quarter on quarter. It is like cigarettes business which is getting sold even with cautious note “Smoking is injurious to your health”.

Infact , investors are ready to pay insurance premium for his car without any return but sadly not for his own life .

Since ULIP are in news under unfavorable products  .People are aware about the cost structure and IRDA has made lot of changes and tried to make it more simpler .But according to me , it is still very costly as compared to Ulips in developed countries .

Now Agents are busy in selling traditional plan where company does not disclose any charge structure but it can be more dangerous to the client as it is debt product with high charge.

One should first consider buying a term plan and then look for some other insurance options if any.