With the aim to get a risk cover, Muhammad Ashraf Bhat of Shaheed Ganj invested his hard-earned Rs 2 lakh in a life insurance policy in 2013 offered by a multi-national insurer but recently when the policy matured, Bhat’s plans of securing his future financially were completely derailed.
To Bhat’s absolute shock, despite shelling out a yearly premium of Rs 12,800, he found out that there “has been no benefit derived from the insurance policy,” Bhat says. Like Bhat, several others, who have put their money in life insurance policies of various companies, told Greater Kashmir about the “poor returns” they received despite investing their hard earned money in the Unit Linked Insurance Plans (ULIP).
“The policy agent had assured me that I would get returns worth double the amount I had invested in the policy. Having put my efforts for 15 years in the policy, I realized that the policy was not worth it,” Bhat said. Another investor, Nisar Ahmad said even as financial markets have generated healthy returns over last decade but “people who invested in insurance are finding it hard to secure their own principle amount”. “I had invested Rs 1.20 lakh over a period in an insurance policy but I did not even get my principle amount back, not to talk of the profits,” Ahmad said.
Several financial planning experts told Greater Kashmir that some people in the valley have been at the receiving end due to the ULIP as “insurance sales persons selling this financial product had failed to do need-based selling”. The experts said these sales persons did not cater to “individual needs and requirements of the customers”.
Ifthikar Bashir, a financial consultant who runs a consultancy Capital Gain Consulting said even though investments across capital and money markets cannot be guaranteed but the sales persons of insurance companies had mislead the common customers resulting in losses to investors.
“ULIP was created as a “vanilla product” which meant that it provided both insurance and investment needs. However, the money was invested by a cross-section of people in Kashmir across capital and money markets with the assurance to them that the money would get doubled in three years,” Bashir said. “Taking advantage of lack of financial awareness sales persons of insurance companies had sold a long term product as a 3-year guaranteed product, leading to loss of hard-earned money of common people,” Bashir said. Bashir says “duping common people was done in connivance with insurance companies as the terms and conditions mentioned on the policy document were highly biased in favour of the insurance companies.
“Even IRDA (Insurance Regulatory Development Authority) had failed to come to the rescue of policy holders initially. It was only in September 2010 that Reserve Bank of India came up with a change in its guidelines such as “setting up a minimum lock-in period of 5 years instead of 3 years and the introduction of discontinuation funds which were considered as pro-investor measures.
“Despite being promised doubling of returns in 3 years, most of the people didn’t even have their principle amount intact due to the high charges levied by ULIPs. ULIP is a long term investment while as it was sold as a short-term guaranteed product which created the problems for investor,” Bashir said. “Many people were sold a regular premium ULIP as a single premium ULIP. This means for instance an investor has Rs 1 lakh and he wanted to invest it as a single premium policy but the sales people cheated policy holders by processing it as regular premium product. Because of lack of knowledge sales persons of insurance companies were not able recommend a proper fund (equity, debt, and hybrid) basis customer needs.
Another financial planner Syed Ashfaq says from 2005 to 2008, when stock market across the country were booming, many sub-brokers, asset management and insurance companies set up operations in Kashmir. However, Ashfaq says that despite mushrooming growth of investment avenues, “sales persons are usually not professionally trained about the financial products selling in the market which causes miscommunication with the investor”.
“Lack of investor awareness is the core reason that buyers in this part of geography get disappointed by the returns of the financial products they purchase. Every financial product should be bought after a proper financial planning keeping in view his long and short term financial goals, however buyers just ignore that basic understanding and the basis of purchase,” says Ashfaq. “Sales people who are hired for selling these financial products aren’t properly trained on the products they sell as such it ends up mis-elling or miscommunicating the product resulting in over expectations or wrong expectations of returns and ultimately a disgruntled end customer,” Ashfaq says.