Insurance products are among the most mis-sold financial products in India currently. This is evident based on data compiled by the Ministry of Consumer Affairs, which shows that most complaints received are about health and life insurance products, points out Monika Halan, author of Let's Talk Money, in the first episode of NDTV Profit's Big Decisions.
The mis-selling occurs despite the standard disclaimer that accompanies all messaging associated with insurance products – “Insurance is a subject matter of solicitation”. That, according to Halan, is because the commission structure, particularly for bundled life insurance products, are skewed to incentivise heavy selling.
Bundled products are those that include pure life insurance and an investment component. In its purest form, life insurance is meant to transfer the risk of loss of life from an individual to the insurance provider. This is called term insurance.
The buyer of term insurance must compensate the company in the form of a premium. In other words, the premium is a cost that the policyholder must pay. And, like an auto insurance policy, the premium is not recoverable. That is, if the policyholder does not lose their life, they don't receive their premium back.
However, most products sold today are not term insurance, but rather bundled products, termed as ‘traditional policies', ‘money-back policies, or ‘unit linked insurance plans'.
Catch the first episode of NDTV Profit's Big Decisions where Monika Halan explains why life insurance policies are mis-sold so often, which products an individual should avoid and when life insurance should be bought.
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