I do not wish to call this class 1 or class 2 – that raises expectations! But here is a small story…
A friend called up to say “This person has come to me with a UL policy – she says pay Rs. 50,000 for 3 years, then you can even remove all the balance above Rs. 50,000 (which is the minimum to be kept in your account)…and you can get Rs. 20,00,000 life cover till your age of 100 years.” I was sadly not impressed. So I explained to him:
1. The fund value of your policy is a function of No. of Units x Nav per unit. If you think this is basic, well my HNI friend did not know it! Every year towards your risk cover some units will be reduced, so the value of the fund can fall. If the fund value falls below a threshold limit, your policy could be cancelled.
2. Policy servicing costs, fund switch costs, Premium redirection costs, will all be debited to your account.
3. With the continued recovery of mortality charges (on an increasing basis – with age), and other costs the value is likely to come down, not go up.
4. If the value went below the Minimum Paid up value, the policy WILL get canceled.
Here is a HNI customer who invests / saves at least 2-3 crores a year who did not know any of the above 4 TRUTHS. Neither had the girl who came to meet him tell him that. Simple she had not done her home work. In fact if she had done it she would have pitched him a Rs. 10,00,000 premium with a Rs. 1 crore sum assured, and collected the cheque. Her saying Rs. 50,ooo for a Rs. 20,00,000 cover exited him to call me. LOL.
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