Senior citizens continue to be duped into buying high-premium insurance policies, sold to them as annuity plans, with no attempt to stop or punish this widespread fraud.
As a banker and counsellor at Moneylife Foundation, I find it painful to meet distressed seniors, almost every week, seeking guidance on how to deal with the mis-selling.
So how does this work?
It starts with bank RMs calling customers with the offer of 'single premium' policies offering a fixed annuity. Since the caller is their RM, he is already aware of the customer's financial strength, savings account balance, fixed deposits, credit card history and other details.
A personal meeting is fixed where the customer is told that a single, lump sum investment will provide lifelong fixed returns. The minimum lump sum premium is usually pretty high – anywhere from Rs3 lakh to Rs20 lakh-Rs30 lakh. However, this does not surprise the customer since it comes with the assurance of a regular annuity payment after a while.
If the sales pitch succeeds, the RM notes down customer details on the prescribed application form and asks for signatures. Most people, who sign after such a sales pitch, do not make the effort to read the form, fill it up themselves in their own handwriting (as required by insurance policies) or even scrutinise it after it is done.
These days, an RM will pull out a tab from his bag and start punching data into it for smoother and faster onboarding.
The most important column in this form is 'Premium payment frequency.' The options are monthly, quarterly, half-yearly, yearly and lump sum. The agent puts a tick against the 'yearly' option without explaining the implications to the customer. It ensures that the customer only realises he or she has been duped after 11 months on receiving a notice for the next premium payment.
When an average, middle-class customer signs up for such a hefty annual premium, it ought to raise a red flag but insurers have another check, which I will describe later. They ought to track and double-check such policies and punish mis-selling. But banks and insurers simply don't care. On the contrary, the RM, banker or agent who commits this fraud, is seen as a star salesperson and rewarded with incentives and bonuses.
It doesn't stop here. With another 11 months before the fraud is revealed, the agent uses the time to dig up information about a customer's family and sweet-talks them into purchasing additional policies in the names of children and grandchildren, portraying it as smart succession planning with benefits. A slow legal system, which gives primacy to the words of the contract and signatures affixed by the customer, works against them when they finally wake up and want to lodge a complaint.
What pains me even more is that the problem is not limited to senior citizens. The younger generation, or Gen Z, is also casual and careless about reading and understanding insurance proposals and tends to sign forms blindly. This will ensure that the fraud remains active in the future.
Let me share my own experiences in this regard. I have a savings account and some fixed deposits with a private bank. I received a call from the bank pitching a certain mutual fund as a good investment opportunity. When I mentioned that I did not have investible funds, the person suggested that I should withdraw money from my specific FDs, whose details he had access to, and invest it in this mutual fund scheme to earn higher returns. I wrote to the bank asking if it approved such advice being given to its customers. I have received no answer.
At another time, when I visited the bank branch, an official tried to canvass an insurance policy of a private insurance company. I would have to pay a premium of Rs1 lakh every year for 10 years and, in return, which would give me a fixed annuity of Rs37,000 per annum. That was a mammoth 37% return in the very first year!
I kept my cool realising that it was a market-linked policy whose returns were not assured. One friend suggested that I could stop paying the premium after one year. What worried me, was that the bank official kept following up with me to buy the policy but refused to provide any official document to show that I would get the fixed annuity for 10 years.
How to avoid such traps?
A positive feature and important safeguard today is that the insurance company calls every policy-holder and shares important details of the policy in a confirmatory call which is recorded. The policy-holder has to confirm each clause verbally or point out the discrepancy, if any. It is very important to be attentive during this call instead of mechanically confirming details.
My experience is that such confirmation calls never ask for our bank details, one-time password or other such information except what is mentioned in the application form. You must also remember to obtain a copy of the filled-up form without fail. This will help you verify that your personal details are accurately noted, understand the terms and conditions and catch discrepancies. Once the details are confirmed, the company usually mails the policy to the holder.
But this does not end our options. The customer still has a 15-day lookout period from the date of receipt of the policy, to read the terms and conditions and check that personal details are accurate. A policy can be cancelled or returned during that period, if the details are not what was pitched by the agent minus a small administrative charge.
As the proverb says, "Prevention is better than cure", so try and meet your RM or banker in the company of someone who understands insurance. Record the conversation/ sales pitch on your phone and preserve it carefully. I remember having advised a lady, who had such a recording, to present it before the insurance ombudsman, Mumbai, which helped her case. The ombudsman ruled that it was a case of mis-selling and ordered the insurance company to refund the entire premium.
Do not allow yourself to be hurried by RMs/ agents with the claim that a particular scheme is to close within the next two days.
Remember never to sign any form in a hurry.
Do not purchase policies for your son or daughter or grandchildren, especially if they are doing well, or have the means to be looked after. You may find this suggestion harsh, but it is common emotional play to mis-sell insurance.
Finally, never ever touch your provident fund or break existing investments (FDs or mutual funds) to purchase insurance. Keep the investment intact for other contingencies.
Every insurance company has a nodal officer, whose details are available on its website. Your policy document also contains these details. You can register your grievance online or offline.
One proof of mis-selling would be to produce your income statements and tax returns of the past three years if it can establish how the premium you were fooled into signing up for, is exorbitant compared to your annual income.
If there is no positive—or any—response within 30 days, the matter should be escalated to the state insurance ombudsman. Your last course of action is the district consumer commission.
If you have been a victim and need guidance, you can register for my free guidance sessions at Moneylife Foundation, by mailing [email protected]
with details. These sessions are available in person and via phone or Zoom.
(Retired banker Abhay Datar is a consumer activist and an expert counsellor at Moneylife Foundation. He was a member of the Managing Committee of Mumbai Grahak Panchayat (MGP) and also the treasurer at MGP for over two and a half years. After working at Bank of Baroda for 29 years, he retired as IT Manager. Mr Datar has resolved many cases related to banking and has also handled cases related to insurance and mediclaim.)