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Ill-informed customer choices and mis-selling are fairly significant issues for the life insurance industry today. There are customers who know very little about the policies they have bought, their terms and conditions, or even the benefits that would eventually accrue to them. This invariably leads to considerable disappointment and heartburn when policy details surface. Arrival of the policy statement or an attempt to claim policy benefits is often the first time that customers realise that they have made an illinformed choice or have been mis-sold.
There are many reasons that result in an ill-informed choice. In the rush to expand and recruit advisors, insurers may sometimes pay less attention to the profile of the customer. The result is a motley group of advisors, many of whom view the profession as a stopgap arrangement and others who are not inclined towards life insurance. For example, advisors who are not married may lack the perspective required for life insurance. Family responsibilities are vital to truly understand the havoc that premature death can cause.
Inadequate training is another issue. Advisors who commence business without sufficient training and support face the daunting task of explaining relatively complex life insurance products to customers. They could take the easy way out by approaching family and friends for initial sales. Such purchases are often driven by a sense of compassion rather than a real need for protection. Thus, when the agent leaves, these policies lapse. For enduring success, insurers must equip their advisors with referral-generation capability that allows them to go beyond their natural market.
However, the primary responsibility for policy selection lies with the customer. I am dismayed that the level of research that goes into purchasing a mobile phone is far more than that made to purchase a life insurance policy. The rationale for this escapes me, as life insurance is one of the most critical purchases an individual will ever make and deserves more attention.
So what can you do to ensure that you make the right insurance choice? First, clearly understand the need you are trying to address. Typical needs are death protection, long-term savings and investments and retirement requirements.
Second, understand the options available. Read terms and conditions for each product. Ask questions. Talk to people. Ask for policy illustrations. Take your time. Make sure you are satisfied with the quality of advice you get.
Third, use appropriate metrics to evaluate products. If protection from premature death is the objective then look at the death benefits, mortality charges, age until which death benefits will be available, etc. If long-term savings is the objective, then look at the reduction in yield as a result of charges, as well as the costs, in case you want to make policy changes over time. Be clear about who is bearing the investment risk and carefully understand the guarantees, if any, that the insurer is making.
Most importantly, do not procrastinate purchasing a life insurance any further. Call an advisor and make an informed choice today.
Kapil Mehta is CEO, DLF Pramerica Life Insurance
