On a Sunday morning, after a little bit of Golfing, I usually retire in the attached clubhouse. It’s a wonderful place surrounded by trees and often a meeting place with my friends. Its always the merry talks that allow my mind to relax and release the stress of my week. On one such morning, Anand Sridhar, a friend of mine joined me. “This is so irritating! Why do these guys do this?”, said Anand. “What happened, Anand?”, I asked, startled.
“Sorry, I just got a little irritated. I know that you have always mentioned that insurance should be for insurance purposes only and not for obtaining returns. But, how do I stop someone from mis-selling to my parents?” He stated.
“My father recently got sold an insurance product which has a premium of Rs. 2.5 Lakhs. He has already paid the premium.” He sighed.
“I applied to cancel the policy within 5 days, but they have given me only 80% of the entire amount invested. The fine prints got my father!” He said, shaking his head in helpless dejection.
Anand is a CTO of a large organization and a dear friend of mine. His father, a retired army personnel earning pension income is not a naïve person. We need to give credit to the insurance companies for hiring sales persons who can emotionally encapsulate any individual and sell a product which may have limited benefit.
In my experience in this field so far, I have had countless number of people come to me to get their insurance products “analyzed”. They call it their “savings” or “investments”. I maintain that not all insurance products are bad, but most of them are terrible. Usually Unit Linked Insurance Plan (ULIPs) are characterized by high upfront commission for the sales agent, long lock-in periods, dismal returns, less sum insured. In simpler words, you don’t get returns that beat inflation nor do you get a great sum assured with this purchase, however, periodic payments from your end is a guarantee.
Problems do not just end here. I don’t need to emphasize on the scrutiny one needs to pass through to obtain the insurance payouts. We had a client – a couple, Vishnu and Lakshmi Muthanna. When Vishnu passed away, it was a painful experience for Lakshmi to obtain the term insurance payout. I remember clearly the number of times the application was rejected, and the number of times Lakshmi was dejected.
The PAN card name for Vishnu was “Vishnu M”, while the bank statement had his name printed as “Vishnu Muthanna”, Aadhaar Card had “Muthanna Vishnu”. While the addresses were the same, the nomenclature difference was an easy pick for the insurance payout officer to reject the claim.
I remember Mrs. Muthanna calling me and conveying her helplessness. We consulted an expert and lawyer on this matter, and it was only once when we walked in with meticulous details, legally connecting all the three names as one, that the insurance company processed the claim.
How do we help Anand? Can we help him?
Determined to get the best for anyone who asks for an opinion, I took charge over the matter. Upon a quick calculation by our team, we understood that the insurance people had processed the insurance during the “free look period”.
Free look period is a mandatory period in which a new life insurance policy owner can terminate the policy without penalties, such as surrender charges. A free look period often lasts 10 or more days (depending on the insurer), allowing the contract holder to decide whether to keep the insurance policy; if he or she is not satisfied and wishes to cancel, the policy purchaser can receive a full refund.
Armed with this information and the Insurance Ombudsman number on my speed-dial, we arranged for a meeting with the insurance representatives. Voila! We got 100% refund of the premium amount.
Our philosophy at Mitraz has never been about chasing returns. XIRR or CAGR or “Returns” without understanding the risks involved can be a mirage and many times a gamble not worth taking!
Slow and steady, wins the race. A childhood motto that makes perfect sense for any person willing to invest in the stock markets. Ironically, the stock market attracts impulsive people who are all in the lookout for making quick money. The ones who prevail are only the ones who know how to manage their risk. It is important to avoid downfall. Manage the downside and the upside will automatically ensure that you reap benefits in the end.
Insurance products are often sold as products which will give you an illusion of safety (in the name of sum assured) and an illusion of great returns (by linking it to the market). But it never is really the case. Do understand that you require safety from the down-turn of the market and not life, when it comes to money matters.
Upon obtaining the refund in its entirety, Anand smiled, looked at me and said “Thank you, Mitraz. You have been my insurance against insurance.”