When your insurance agent comes calling, does he sell you insurance products? Or does he offer you investment opportunities and tax-saving schemes? In nine cases out of ten, agents don’t sell pure insurance. “Unfortunately, investors still buy insurance policies for tax and investment needs, paying huge commissions,” says Ajay Bagga, CEO, Lotus Mutual Fund. Little wonder then, that so many Indians are woefully under-insured, despite having a dozen or so “insurance plus” plans to their name.

You might think that this does not apply to you. After all, you bought an endowment policy of Rs 50 lakh just last week. Your agent, no doubt, told you that buying an endowment or money-back plan serves three purposes: insurance, investment and tax saving.

Hitesh Gururani, 33 Dehradun The case Trusting an insurance agent (and colleague), Gururani took three endowment/m oney-back plans and a Ulip. He pays Rs 52,500 as premium every year for the three policies, which cover him and his wife for Rs 2.5 lakh each. The Ulip costs him Rs 20,000 a year and gives him a cover of Rs 4 lakh The mis-selling The agent did not tell him that there were more profitable investment avenues and cheaper forms of insurance The mistake Gururani could have kept himself informed on the products available instead of trusting the agent The damage Not enough money left to invest in higher- return instruments Up to 40% of the first year’s premium goes into the pocket of the insurance agent

But did he also tell you that at a moderate inflation rate of 4%, the value of that Rs 50 lakh will be only about Rs 19 lakh in 25 years? Take an inflation rate of 6%, and the amount falls to Rs 11.5 lakh. Or did he tell you that a term plan with a far lower premium will provide sufficient insurance cover?

It’s very unlikely that he would have, because pure term plans offer a niggardly 10-15% commission compared to the 20-25% that he can make by selling an endowment or money-back policy. Besides, term plans have low premiums while money-back and endowment policies require heavy outlays.

Hitesh Gururani has plenty of insurance plans, but now realises that these are not the most suitable. His agent (also a colleague) “never informed me about the benefits of a term policy,” says Gururani.

If your insurance agent sells you an investment or tax-saving product without telling you about cheaper pure risk covers, he could be crossing the line and misselling. Of course he can hardsell those plans that give him a better commission, but remember that it’s your family’s future on the line. Do you want to compromise your family’s future financial well-being just so the agent can make a few bucks?

Five questions to ask before taking an insurance plan

1. Is the insurance cover at least 10-20 times my annual expenses?

2. How much of the premium goes into paying the commission?

3. What happens if I can’t pay the premium a few years from now?

4. Are the projected returns guaranteed by the company?

5. On an annualised basis, what kind of returns can I expect from a traditional insurance plan?