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Facts that your insurance agent never tells you

Last updated on: May 29, 2012 11:34 IST

Facts that your insurance agent never tells you

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W
hen the insurance advisor approaches to sell a policy or plan, his persuasive tone might drown your doubts.

Features that provide a feel good factor are only disclosed to the customers and aspects that have even a marginal negative connotation are conveniently hidden by the agent.

A careful inspection of the fine print in the policy document will reveal many such loopholes that may actually prevent you from getting all the promised benefits of the policy.

It is, thus, a good idea to get all your doubts clarified right from the beginning to avoid unpleasant surprises later.

One may also approach the branch manager or the training manager of the insurance company in order to get all the details simplified whenever there is any confusion regarding the terms and conditions or the features of the plan.

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Photographs: Illustration: Uttam Ghosh/Rediff
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Hidden charges

Depending on the insurance variant and nature of the plan the fee and charges will vary.

If you are opting for a insurance plan that combines investment and insurance your agent might casually overlook any mention of the allocation fees and administrative charges that the insurance company is going to take from the amount deposited.

The first aspect through which the buyer will lose money when taking an insurance policy is the allocation fees, which comprises the administrative charges and the risk premium charges.

This implies that when you buy a policy there will be considerable amount deducted from the money paid towards allocation fees and the remaining will only be used to buy units for your insurance account.

The allocation fee is typically highest in the first year and thereafter reduces proportionally. Thus in order to recover the basic amount that has been invested the investor will have to wait till the NAV of the remaining amount grows to make up for this amount.

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Photographs: Illustration: Uttam Ghosh/Rediff
Tags: NAV

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Facts that your insurance agent never tells you

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Lock-in period

The lock in period is another aspect that the agent is usually shy to explain. This is the mandatory period for which the money must stay invested with that company in order to derive benefits.

In case the investor wishes to withdraw during this period there are likely to be severe penalties which will significantly reduce the net amount payable to the investor - as high as 4 per cent of the amount paid may be lost in case you withdraw before the completion of the minimum prescribed lock-in period.

Thus while making the decision to buy a policy one must look at the possibilities of any requirements for withdrawing in between and then put in the money.

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Surrender charges

The surrender charges are never mentioned to the buyer at the time of purchase.

The agent will usually promise that the entire NAV of the plan will be paid out to the customer incase the policy is surrendered before its maturity.

However, this is not the case in majority of instances. All companies do levy a fixed surrender charge if the policy does not reach maturity.

This charge can be quite an amount considering the fact that the plan is held for 10 years or more and surrendered before maturity. Thus while buying a plan it would be wise to carefully consider the maturity period specified for that plan.

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Photographs: Illustration: Uttam Ghosh/Rediff
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Terms and conditions

There are several other factors that the terms and conditions of any insurance policy mention to which most buyers do not pay any heed at the time of purchase.

However this slip up may actually render the policy invalid or make it extremely difficult to claim the full benefits at the time of requirement.

It is in your own interest and the interest of the family members whom you are trying to protect, study all the clauses that is mentioned in the fine print of the policy before actually signing the deal.


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