Nowadays, whether it is tax saving, retirement plan, fixed deposits, buying gold or opening a new bank record, insurance plans are offered for all financial purposes. When purchasing insurance coverage, due to its complex processes, lack of financial knowledge, scam and many other reasons why policies are sold poorly. This results in immense monetary losses and customer dissatisfaction, ultimately putting the insurance industry in a bad light.
The majority of NRIs also invest in insurance in India. Like other people, after discovering that investment plans or fixed deposits have been mis-sold, they also become uncertain about the next steps. The article will highlight ways in which NRIs can implement such policies.
How NRIs can fix mis-sold policies
For a substandard or useless insurance policy, the following choices can be considered –
Two options immediately available are-:
- Free consultation period – After receiving the policy, the insured has 15 days to assess the policy and, if necessary, return it to the insurance office. Usually, certain deductions from the reimbursement are made, such as administrative costs.
- A paid policy – After 3-5 years, one has the option of employing this option if they discover that the policy does not support their goals. Paid-up insurance no longer requires the payment of premiums to maintain its benefits until maturity. A policy can be converted to a paid-up policy if it has cash value, which typically occurs after three annual premium payments for traditional plans. The policy will continue on the basis of the reduced sum insured and the final paid-up value will include the sum insured plus the premiums that will be paid at maturity. For ULIPs, you can stop the premium payment, the fund value will be paid into the discontinued plus life insurance policy fund, and you will receive the money after 5 years with nominal interest.
Less sought after alternatives are-:
- Policy Lapse – The insurance will expire if premium payments are stopped at any time before the defined period of the policy. Consequently, the risk coverage is terminated and no reimbursement is granted to the insured. To reinstate such a policy, the Insured will be required to pay any outstanding premium arrears together with penalties and interest. It is better to let such a policy expire and buy a new one instead of reinstating the expired policy.
- Policy Surrender – When a policy is surrendered, premium payments cease and the policy contract expires before the specified maturity date. Payment of policy premiums for a specific period is a must to be eligible for redemption. The closer the proximity to the actual maturity date of the policy will be the greater the cash value. But, even the principal amount is forfeited if the policy is surrendered in the early years.
ULIPs only allow redemption after 5 years. According to the proposed IRDA regulations, ULIPs must accumulate a reserve from the premiums paid each year to give customers significant cash value in the event of early redemption before five years.
- Loan on the policy – Surrender incurs a significant loss, so one can meet their financing needs with a loan from the insurer against the accumulated cash value of the policy. It can be used to pay future premiums and, when the policy matures, it can be redeemed in cash. It will be beneficial as long as the interest rate is lower than the yield of the policy.
2 ombudsman systems can also be viable alternatives:
- Insurance mediation system – The insurance ombudsman requires you to contact the insurance company first. So, send a letter to the insurance company, mentioning the point-to-point details related to the mis-selling. Besides mailing, send a physical copy to their head office via express courier. Within 14 days the company will get back to you and if you are not satisfied you can expedite a copy of the entire courier track with the previous expedited courier POD, source documents, proofs and copy of the police to the regional office of the insurance ombudsman. The mediator will provide you with a hearing date and listen to your complaint and may order the company to reimburse based on the evidence presented.
- Banking mediator system – Customers to whom third-party products have been mis-sold by banks can now go directly to the Banking Ombudsman for resolution, as per a new notification issued by the RBI on June 23, 2017. The jurisdiction of the Ombudsman is also expanded as the Bank Ombudsman can now place orders up to Rs 20 lakh, which used to be Rs. 10 lakh before. And it can also order up to Rs 1 lakh in damages for the plaintiff’s lost time and money, abuse and mental distress.
To encourage greater transparency and fewer cases of mis-selling, IRDAI has urged insurers to provide potential customers with explicit policy communication at all times. Intermediaries are also subject to strict rules. IRDAI encourages a variety of alternative means to resolve mis-selling issues. But on a personal level, you can – ask for a standard illustration, fill out the form alone, contact the Insurer for any questions, consider offers that are too attractive, etc. so as not to fall into the trap of badly sold insurance.
The opinions expressed above are those of the author.
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