Here’s a short case study basis the experiences I have had while talking to clients about their thoughts on Life Insurance.
To begin with, let me explain these two terms I have generously used in the article:
- ULIP: A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that gives you the benefits of both life insurance and market investment under a single integrated plan.
- Term Insurance: Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified “term” of years. If the insured dies during the time period specified in the policy and the policy is active – or in force – then a death benefit will be paid to the insured
Case 1: ULIP Boom and Bust
None of us can forget the era when the so called ULIP Boom happened. It was at its peak during the year 2010.
In this period life insurance agents had a field day making promises to clients like- “the money that they invest would automatically get doubled in 5 years” , “all you need to do is pay your premium for 5 years and for the rest of the policy term, the insurance company will pay the remaining amount and still give you huge returns” – the false promises continued so on and so forth.
Was it the fault of the life insurance agent or the customer? I would say both.
It is shocking to note that the customer, who probably haggles with every other vendor in the neighborhood to give him discounts on everyday goods, never asked any questions when buying a very important thing like Life Insurance and blindly believed whatever the insurance agent told them.
He should have at least asked basic questions like-
- Whether they were surely going to get said amount after 5 years, could the agent show the proof?
- What charges would be levied on this investment?
- Does the plan really guaranteed returns or not?
ULIPs sold like hot cakes in this period, but unfortunately customers who were sold with the dreams of getting double money and other false claims, were hugely disappointed and felt cheated.
Result : Customers stopped believing in ULIPs.
Now a days, with the fall in customer’s positive sentiments for ULIPs, life insurance companies have tilted the scale towards Term Insurance Plans.
Case 2: Life Insurance Companies Focus on Term Insurance
A new insurance agent presents a good “Term Insurance Plan” to the same customer who earlier bought ULIPs; but things have changed now.
Customers who had blindly chosen ULIP products without a single question,are now ready with their list of questions. Alas! Only if they understood life insurance and asked pertinent questions.
Instead of asking questions relevant to Term Insurance, the customers asks questions like –
- How will I be benefited if the money is received after my death?
- If I survive will I get anything?
We often forget that the real meaning of the word “life insurance” is to build an emergency fund for one’s family and support them in case one meets with any unforeseen mishap in life. It is surprising to note that not only people misunderstand term life insurance but also are reluctant to pay relatively lesser amounts of premium for higher life coverage when compared to other market linked insurance schemes.
Forget Returns and Know the Whys of Term Life Insurance