- Date : 05/02/2023
- Read: 4 mins
Do you want to take insurance just to save taxes? Read this article to make informed decisions
It's a common scenario during the tax-saving season (January to March), where individuals rush to sign up for insurance-cum-investment policies, with the intention to save on taxes. Unfortunately, this impulsive decision often leads to regret later on. This article delves deeper on what are the various insurance frauds (or insurance traps) that an individual needs to be aware of and covers the following insurance frauds (traps):
- Renew your expired policy
- A traditional insurance policy is similar in nature to Fixed Deposits
- Enjoy multiple benefits with a single insurance policy
- Secure your future with a guaranteed policy that builds wealth without the worry of market fluctuations
Mis-selling insurance policies is a prevalent issue in India, where insurance agents often push policies that are not suitable for the buyer's needs, just to earn a commission. The mis-selling of insurance policies not only causes financial loss for the customer but also undermines the credibility of the entire insurance industry. Interestingly as per Annual Report 2021-22 published by IRDAI (the regulatory body for Insurance companies), the number of complaints (regarding mis-selling) has reduced from 25482 in 2020-21 to 23110 in 2021-22.
Given below are some frequently used statements by insurance companies/ agents to convince individuals to buy inappropriate insurance:
Renew your lapsed policy
In simple terms, expired/ lapsed policies are those in which policyholders have ceased paying premiums, causing the policies to become inactive. Usually, telemarketers inform policyholders that their expired policy has accumulated bonuses, and must be revived in order to access the bonus. Policyholders are asked to pay a fee for reviving these expired policies.
These telemarketers are often fraudulent, either having obtained information about lapsed policies or sometimes fabricating policies. Their mention of large amounts convinces individuals often driven by greed. These telemarketers instruct individuals to decide and pay within 7-10 days and once the individual pays, they (telemarketers) never revert back.
A traditional insurance policy is similar in nature to Fixed Deposits
The agents may tell the investors that a traditional insurance policy is a safe and secure way to invest money and is similar in nature to Fixed Deposits. Insurance agents tend to conceal the truth that insurance policies don't provide the same level of security as fixed deposits and their tax efficiency may not be as high as advertised. They also often omit that traditional policies are not single payments and need to be renewed periodically.
Enjoy multiple benefits with a single insurance policy i.e tax savings, life cover and returns
By choosing a comprehensive insurance policy, one can enjoy multiple benefits, such as financial protection for their loved ones in the event of a policyholder's untimely death, an advantage of tax savings, and returns. Agents do not typically inform policyholders that, if they invest the same premium amount, they pay for their insurance policy with multiple benefits into separate investment options such as term insurance and mutual funds, they may require a lesser investment to receive higher returns and life coverage.
Employees should take into account factors such as their EPF contribution, tuition fees for their children, home loan EMI, etc. to determine whether they actually need to make additional investments. In many cases, an employee’s EPF contribution largely takes care of the 80C limit.
Secure your future with a guaranteed policy that builds wealth without the worry of market fluctuations
A guaranteed policy is one of the best ways to secure your financial future and build wealth without worrying about market fluctuations. This type of policy will guarantee a steady return on your investment regardless of market conditions. Returns generally range between 4-6 %. However, policyholders neither get adequate coverage nor do they get good returns. If policyholders invest the same premium amount, into separate investment options such as term insurance and mutual funds, they may receive higher returns and life coverage.
Mis-selling insurance products in India remains a significant problem, with agents often pushing unsuitable policies to customers for personal gain. However, data shows a decrease in the number of mis-selling complaints in 2021-22, according to IRDAI's annual report. Consumers should educate themselves and assess their financial situation before making any insurance purchases.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.