Why seniors are easy targets

Many elderly citizens remember a time when banks did not sell third-party products and therefore place considerable trust in them. They may not realise that recommendations can be driven by sales targets and incentives rather than their needs. That trust also discourages scrutiny. “They may sign where instructed without seeking further paperwork because they trust the banker,” says M. Pattabiraman, associate professor, Indian Institute of Technology Madras and founder, Freefincal.

Senior citizens often hold a large part of their retirement corpus in bank fixed deposits. “Large fixed-deposit holdings make them easy targets for high-margin products presented as secure income streams,” says Pattabiraman.

Forms of mis-selling

Sellers may misrepresent an insurance policy as a high-interest fixed deposit, a short-term savings plan, or a product carrying a fixed, guaranteed return (even where that is not the case). 

Customers may be misled about the premium-payment term. They may also be told that one large payment will sustain lifelong insurance and returns, only to discover that they have to pay a regular premium when they get a reminder from the insurance company. 

Elderly buyers may not be informed about the lock-in that most insurance products come with. This can hurt elderly buyers who need cash urgently, say, for a medical emergency or another urgent expense. They may also not be informed about the fact that a premature exit attracts heavy penalties. 

Products that do not fit

Barring immediate annuities, most life insurance products may not be suitable for senior citizens.

An immediate annuity may suit an elderly person who wants a regular guaranteed income. Annuity plans offer several options and hence require careful evaluation. 

A deferred annuity makes little sense for a person aged 75 or 80 who must wait another five or six years for income. “Returns during the deferment period may be only around 4 to 5.5 per cent,” says Renu Maheshwari, Sebi-registered investment adviser, co-founder and principal adviser, Finscholarz Wealth Managers. Deferred annuities also have low liquidity.

A unit-linked insurance plan (Ulip) carries market-linked volatility, which can make a senior citizen’s portfolio unduly risky. 

Endowment and money-back plans may offer returns too low to cover medical inflation. Senior citizens who no longer earn generally do not need term life insurance. 

Understand product features 

A buyer must distinguish the premium-payment term from the policy term. A deferred annuity buyer must understand when income will begin. If a person deposits ~5 lakh and receives ~1 lakh a year from the sixth year, the payout does not amount to a 20 per cent annual return. “The waiting period lowers the effective return,” says Maheshwari.

In many annuity products, the corpus remains locked until death and offers no liquidity. “A promise of liquidity from a locked annuity corpus indicates mis-selling,” says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan.

The buyer must identify the proposer, the life insured or annuitant, and the payout recipient. The buyer should also ask for the policy’s actual internal rate of return.

Check whether the policy permits an exit and examine the surrender value, including the applicable losses or penalties.

A Ulip fund’s return should not be mistaken for the policyholder’s return. “The policy return must account for charges and expenses deducted from returns,” says Maheshwari.

Read before signing

Ask for the one-page customer information sheet and read it carefully. “The customer information sheet states benefits, exclusions, lock-in terms and charges,” says Maheshwari.

Treat verification calls seriously instead of mechanically answering yes to all questions. “Buyers should not hand the phone to another person to answer on their behalf,” says Kapil Mehta, co-founder, SecureNow Insurance Broker.

Check the issued policy

For life insurance, the benefit illustration is the most important document. It shows how much the policy will pay and when it will pay. “It also distinguishes guaranteed benefits from non-guaranteed ones,” says Mehta.

Arora suggests that a financially knowledgeable senior citizen should check the policy schedule page.

Use the free-look window

The free-look period runs for 30 days from receipt of the policy document. Use this window to get the policy analysed if it was not reviewed before purchase, and return it if it is unsuitable.

Visit the insurer’s local branch with the prescribed documents to get the policy cancelled. “Obtain an acknowledgement of the cancellation request,” says Arora.

Senior citizens should also ensure that they receive the policy document within the free-look period. “Sellers may at times create an electronic insurance account or a false email address to receive the soft copy of the policy,” says Arora. The senior citizen may consequently not receive the policy, and the free-look period may expire before they have had an opportunity to examine the document.

Complaint escalation route 

Once the free-look period has ended, the buyer needs to first send a written complaint to the insurer’s grievance redressal officer. Do not rely on verbal assurances. “Obtain a complaint reference number,” says Siddartha Karnani, partner, King Stubb & Kasiva, Advocates and Attorneys. 

After giving the insurer an opportunity to respond, approach the Insurance Ombudsman if no response comes or the answer is unsatisfactory.

“An unresolved or inadequately answered complaint may also be escalated to Irdai through Bima Bharosa,” says Karnani. The regulator at times acts on individual complaints.

“If a bank sold the policy as a corporate agent, complain to the bank’s grievance cell,” says Karnani. Escalate the matter to the Reserve Bank of India (RBI) Ombudsman scheme if necessary. The option to complain before a consumer commission or file a civil suit is available if other routes fail.

Avoid rushed purchase 

Elderly buyers should not rush into a policy purchase or yield to claims that premiums will rise soon or that they will miss out on a great opportunity that will disappear shortly. Ask for product documents. “Do not sign any form before investigating the product,” says Pattabiraman. Also do not share a one-time password in haste.

“Seek an opinion from an independent fee-only adviser who does not earn product commissions. Consult a knowledgeable and trusted family member if no fee-only adviser is available,” says Maheshwari.

Insist on written backing for every return claim. “A verbal promise of a 10 or 15 per cent return is unlikely to be supported by policy documentation,” says Maheshwari.

Avoid frequent bank visits for simple tasks such as passbook updates or fixed-deposit renewals that can be done online. “Also, avoid taking frequent calls from bank relationship managers,” says Pattabiraman.

•    Preserve proposal form and benefit illustrations from time of sale

•    Compare policy’s underwriting age band with customer’s actual profile

•    Request recording of verification call

•    Recording can show ineligible customer was allowed to buy product

•    Keep bank statements showing premium debits

•    Preserve SMS and WhatsApp exchanges with branch staff or agents

•    Keep copies of every complaint and insurer’s response 

Source: King Stubb & Kasiva, Advocates and Attorneys