Many of you must have come across insurance agents trying to persuade you to buy an insurance product irrespective of whether you require it or not; or the product in question is suitable for you or not. Mis-selling is an evil which is being carried on since decades in the insurance industry, the result of which is that the policyholders are unnecessarily saddled with high premium costs in anticipation of better returns. Moreover the insurance cover associated with such insurance policies is usually inadequate to meet policyholder’s protection needs.
Citing this, insurance regulator - Insurance Regulatory and Development Authority (IRDA) has directed the life insurance companies to focus on need-based selling. This move is an effort to make the industry more customer-friendly, and once implemented it will prevent any channel of distribution from adopting unfair sales practises. According to the IRDA, “Needs Analysis” by intermediaries and insurance companies is necessary before affecting the sale of a life insurance policy. It ensures that the proposed product is suitable for the prospect to meet his/her needs.
The regulator expects that the product mix to gradually be refined and result in greater customer satisfaction. The IRDA guidelines state that, “To initiate need-based selling, insurers must adopt a 'Prospect Product Mix’ which serves as a self-governing tool to assess the quality of sale.” As per the draft guidelines, life insurance companies will provide a standard 'proposal-cum-need analysis form’ to the customer at the time of sale. The need analysis form will include questions related to customer’s age, annual income, financial resources used for purchase of the particular product, risk appetite and financial goals. The guidelines will be applicable to all life insurance policies (traditional, ULIPs, pension and health) sold as individual policies from April 2012.
Impact of such an initiative on policyholders...
In general the initiative taken by the IRDA will benefit the policyholders in a way that they will be able to know the insurance products available and understand their need for insurance. Also, mis-selling may, to a greater be reduced but this has a direct correlation with the life insurance companies adhering to the norms and directing their agents to follow process of need based selling in a prudent manner.
We believe that buying insurance is very important for each one of us. Selecting the right insurance product matching to your requirement is very vital and a difficult task. It becomes more difficult for you to select the right product when you receive at least one call per day from different insurance companies and all of them claiming that they have the best product available in the market.
Please remember when you buy insurance, don’t go by what insurance companies or agents or your family members or friends are telling you. Don’t even buy insurance by looking at which product is doing best in the market.
Buy insurance only when you know there is a need of insurance for you. First analyse what you are looking for from the insurance policy. Here are some points which you should keep in mind before buying an insurance policy:
- Are you buying insurance for protection purpose?
- Are you buying insurance for investment purpose?
- Are you buying insurance just for saving TAX?
Different policies available in the market cater to different needs. Therefore, don’t buy insurance for sake of buying it; buy to indemnify risk to your life, whereby the coverage amount too is optimal taking into account your Human Life Value.