Wake up

How often have you been accosted by someone selling you insurance? I am not referring to telecallers but someone from your friend or family circle, an acquaintance? Quite often right?. Many times a person 'buys' an insurance policy just because all their neighbours were buying it. Some buy policies for their beloved without even inquiring mode of payment when the policy matures and how exactly does the beloved benefit.

Very few agents bother to explain details to you unless you ask. Even then some are not really clued up. Agents get 'commission' for all policies they sell. This may be up to 15-30% of the first premium you pay (can even go up to 60% in some cases!!). That means if you pay Rs 10,000 the amount actually going towards your corpus will be only Rs 7,000. Read this article on livemint.com for more. For some policies (called products) almost the entire first premium goes towards agents' commission, marketing costs etc.

Did you know that? Did you ever find out?
I admit I did not.

Yesterday I watched a very interesting interview of Mr Swarup, Chairman PFRDA on NDTV Profit by Manisha Natrajan. The organisation is in the process of revamping the process of selling insurance in India. The entire exercise is totally focused on the consumer (you and me who buy policies). The aim is to bring in transparency and accountability to the process of insurance selling by agents. I was impressed by Mr. Swarup's clarity of thought and determination. He has a tough job ahead of him as obviously agents will resist this move tooth and nail.

Visit this link for a PDF on a consultation paper the PFRDA has released on its website. It covers common minimum standards for financial advisors and financial education. Its long (30 pages) but very simply written and all of us MUST read and understand implications of this major and radical move by PFRDA.

Not many nations in the world have such systems in place but must we always be 'followers' can we not be 'leaders' in financial reforms?

When buying insurance understand what is it that you really need cover for, which products offer it to you, what does the fine print say, what is not covered. Most important, your agent has to answer all these questions and guide you to a proper choice. He also has to reveal the commission that he will get (that is embedded in the premium you pay). His job is not only to help fill up forms and give you service at home, he must give you service for the entire duration of the policy (15/20/30 years etc).

Don't we pick and choose our potatoes and onions and look for the best bargain when buying a new HD TV?
Then why this laxity when buying insurance? In times of crisis this is what will help you.
Wake up. Be aware.