No this is not a lesson 101 on insurance sales…it is how insurance is normally sold!
First of all let us understand the government will NEVER want to reduce sales of life insurance companies: this is because LIC has 79% market share and it owns LIC. Also the life insurance companies are mandated to invest a lot of money in government securities. As more money flows into the government kitty, interest rates can be kept low. So while mutual funds have a zero entry load, life insurance products will NEVER be at zero load.
Having said that let us see what all things do life insurance sales guys and gals tell you:
1. Sir this is a good investment product: Complete bull. It is almost impossible to build an investment product, with administrative charges, risk charges, asset management charges, as well as being efficient.
2. You do not have to undergo medical tests: Well true, the risk coverage is very low and you are giving a declaration that you are fine. In case something happens to you (death), there will be an investigation. Your nominee will be told ‘he had high blood pressure and he had not declared it…so we cannot pay’. It is impossible to create a reasonable life insurance product and price it the same for all the buyers. It is obviously unfair on the fit people!
3. You will get very good returns – say in the region of 15-18% : It is impossible to get such returns in ANY mass managed product over 30 years! No country or even a company in the world can grow at such rates. So the salesperson is talking through his hat. Absolutely wrong.
4. This is the last week for making this investment: Amazing lie which works very well with most people. Men, women, educated, uneducated..all fall for this fantastic sales ploy. I really have no comments why people fall for it. The oldest salesman trick.
5. Sir, this is LIC’s UNIT LINKED PLAN, so the returns are guaranteed by the Government of India: If you believe this, you will believe anything! There are no guaranteed ULIPs at all in the world. When you take a traditional life insurance plan (endowment) there is a guaranteed amount. This is at an extremely low rate of return (remember the greedy government getting low cost funds?) however in a ULIP – by anybody be it SBI, Hdfc, Lic, Icici – THE RISK IS COMPLETELY on you. Beware.
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