5. Insurance: Mis-selling of endowment plans
Thanks to a dearth of pension products in the country, insurance agents often mis-sell endowment policies to the same policyholder year after year, citing a regular income stream after retirement. Their cut: commission on every policy sold.
The damage. An endowment policy takes at least 6-7 years to break even, courtesy the high costs attached with the product. What that effectively means is that you keep giving the insurance company wads of cash in lieu of a measly sum assured (SA) and low returns.
The pre-emptive strike. Eschew the temptation to invest through endowment policies as they typically offer returns of 6-7 per cent per annum (p.a.). If you are risk-averse, go for Public Provident Fund (PPF)-it currently offers 8.6 per cent p.a. However, those open to risk can look at systematic investment plans (SIPs) in equity mutual funds (MFs) to negate the impact of inflation over the long term.
6. Insurance: Miss-selling health plans
Not many are aware of the benefits of a family floater (FF) policy, which is way cheaper than an individual health plan (IHP). Taking advantage of this, many agents sell separate IHPs for all family members. The motive: selling more policies means more commission.
The damage. Though IHPs serve the purpose of health insurance well in case of a mishap or an illness, the flip side is that you end up paying a much greater amount in premiums compared to what you would have paid for an FF policy.
The pre-emptive strike. Prefer an FF policy to an IHP. In an FF policy, the proposer can get health coverage for his spouse and children (up to 21 years old). If you have already bought an IHP, you can supplement your health cover with an FF, and include family members and dependents in it.
7. Insurance: Bypassing medical check-ups
While selling life covers, agents often advise you to keep the sum assured low so that you can dodge medical tests. That's because if the results are unfavourable, the underwriter (insurance company) can decline the policy, and the agent will miss out on commission income.
The damage. There is nothing more nightmarish than your family struggling to make its ends meet after you have hit the proverbial bucket. An insufficient cover defeats the whole purpose of buying insurance.
The pre-emptive strike. Go for a higher cover even it means undergoing medical tests. There is nothing scary about it anyway-even if an ailment is discovered, it will make sure that your claim is not repudiated at a later stage.
Eschew the temptation to invest in endowment policies since they typically offer measly returns of 6-7 per cent per annum
- Go for a bigger life insurance cover even it means undergoing medical tests
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