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Words of Wisdom : "A successful man is one who can lay a firm foundation with the bricks others have thrown at him." ~ David Brinkley

Coaxing you to replace insurance policy is a scam

One common modus operandi, among many other mis-selling techniques, is to persuade you to replace your existing life insurance policies. 

Don't! 

This is nothing but a scam to make a fool of you. More often than not, you end up on the losing side while the agents / insurers make money at your expense.

To protect the interests of the innocent policy holders and to make this policy-switching difficult for the unscrupulous agents / insurers, IRDA (Insurance Regulatory Authority of India) plans to introduce some regulations.

As defined in the IRDA's draft guidelines, "replacement of a life insurance / annuity policy means selling a new life insurance policy by an insurance intermediary, an individual agent or by an insurer within 6 months from the date of lapse or surrender, conversion into a paid-up insurance and / or modification of the term resulting in either reduction of benefit amount or premium costs of the existing policy."

As such, whenever a policy holder chooses to replace his existing policy with a new policy, IRDA has proposed that no agent or insurer will replace a life insurance policy.... except if it benefits the policy holder and subject to the specified guidelines.

The agent / intermediary shall 
- obtain written consent from the policy holder
- inform the existing insurer of the impending replacement 15 days in advance
- present to the policy holder all the major consequences of making such a replacement and take acknowledgement
- submit the proposal form to the new insurer along with the above consent, acknowledgement and reasons for the proposed switch

Of course, prior to all this, the agent is supposed to make reasonable efforts to keep the existing policy in force.

The insurers shall
- add a covenant in their form specifically advising people not to resort to policy replacement 
- prominently add to the proposal form the consequences of such replacement
- obtain declaration from the agent that guidelines have been complied with
- not withhold any money due in the existing policy for adjusting against the dues of the new policy

In addition, the existing insurer shall
- inform the policy holder the benefits of continuing and the adverse consequences, if any, of replacement
- notify the new insurer of any deviations in the any documents and also inform the policy holder immediately

Let us hope that these draft guidelines are finalized and implemented at the earliest so that henceforth no gullible policy holder is taken for a ride.

Meanwhile, don't miss reading 'Buy only Term Plans...and buy them the Smart Way'.

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