It pays to ask the right questions

BL 7/12/2008

Can you imagine someone selling a financial product that has actually been withdrawn from market? Read on, if you want to avoid being taken for a ‘financial’ ride.

A month ago, I received a call from a person identifying himself as a ‘team leader’ with a leading insurance firm. Apparently, they were selling an insurance product with an ‘assured return’, he said. This gentleman put the ‘assured return’ at 25 per cent a year! The details of the ‘scheme’ were: If I invest a sum of Rs 1,000 a month for 36 months, at the end of the fifth year, the maturity value of the investment would be Rs 72,000.On top of that, I would get an insurance cover for a sum of Rs 3 lakh till the age of 65. I sought further details. I was told the team manager would call. He clarified that the product being sold was a debt-oriented ULIP which planned to invest 75 per cent in debt (government securities), with the rest to be invested in a leading two-wheeler company. I was assured an annualised return of 25 per cent.

When I asked for further details, such as the brochure, I was told that unless I gave a commitment to invest, these details would not be provided. When the representative arrived, I first requested the IRDA (Insurance Regulatory and Development Authority) ID card that is mandatory for all insurance agents. He didn’t have it and produced only his office access card with photo, as proof. He requested me to fill the application forms. The forms were regular insurance application forms, with an attachment of ECS mandate. When I asked for the product brochure, he gave me the one for Capital Unit Gain – a unit-linked insurance plan. In it, I found no mention of any assured return – only an indicative yield table for 18 per cent.

Do due diligence

I called the national marketing head of the insurer concerned. He denied the very existence of such a product and pointed out that Capital Unit Gain, the brochure of which I had been given, had been withdrawn from the market since September. He also clarified that the representative who met me had not been on the company’s pay rolls for the past three months.

I was puzzled; if the representative’s intention was to cheat, why did he want to collect a cheque favouring the insurance company? And would he have asked me to come directly to the branch, to submit my forms? The incident shows that investors have to do a lot of due diligence before investing in ULIPs. Insisting on product literature is imperative.

It is advisable for investors to pose certain basic questions to the agent and understand the product before making any investment commitment.

Ask for the agent’s ID card issued by the representing company with IRDA license number. No insurance company is authorised to offer guaranteed returns for a regular premium product (there are some single premium insurance products in the market which guarantee a return of 7.25 per cent per annum for a five-year term with risk cover).

The insurance agent is authorised to give only an illustration based on projected returns of 6 and 10 per cent as per IRDA rules. For a debt product, insurance companies are allowed to invest only in government securities, ‘AAA’ rated corporate paper and money market securities.

At the end of the day, only a ‘buyer beware’ approach will save you from bad investment decisions.

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