Sales Pitches used for "Mis-selling"

I had heard about mis-selling of insurance products earlier, but I was really shocked when I really experienced it. There are certain standard "sales pitches", which a life insurance advisor makes while mis-selling insurance products. Lets see these standard pitches and be aware in future that you are not a victim of mis-selling of insurance products:

1. ULIPs have free insurance
   
   If any advisor says he's giving free insurance with mutual funds, then he is probably talking of Unit Linked Insurance Plans (ULIPs). But remember always that insurance can never be free. Some mortality charge is always levied (depending on your age), even if the advisor says its free.
   
   Tip: Don't fell into trap, ask for the brochure or call customer care (toll-free numbers) to know the hidden charges.
   
   
2. No details on the expenses involved
   
   Unit Linked Insurance Plans (ULIPs) always involve high upfront charges, referred to as Policy Administration Charges, which range from 14% to 75% of the Premium Amount. Most or all of this amount is passed on to the advisor as a commission.
   
   Tip: To protect yourself from this mis-selling, always ask the advisor to give you a brochure of the product he is selling and look for the table detailing the "Premium Allocation Charge".
   
   
3. Money-back offer
   
   Some of the advisors make huge commissions on the sale of insurance products. They have their own targets and they have conventions and foreign tours to be own. To achieve their targets, they may offer you some cashback. Say you are investing 10,000 bucks and the advisor is making 2,000 bucks of commission (20%). He/She may offer you 1,000 bucks of cashback. (Believe me, I have seen advisors which offer 100% cashback, means they pay your first year premium. But then???)
   
   So, should you invest just because you are getting 1,000 bucks back? Remember, the advisor will offer cashback only in the first year and if the insurance's premium paying term is 15-20 years, you need to pay 10,000 bucks * 20 = 2,00,000 bucks. You will be trapped in a wrong product and your investments and financial planning will fail.
   
   Tip: Understand the product, call the toll-free number, clear your doubts and then go for any insurance product. Don't invest 2,00,000 bucks just to save 1,000 bucks.
   
   
4. Double your money in 3 years
   
   This is the "sales pitch" which is most popular now-a-days. What do you think, is this possible? I have an downloadable excel sheet here, which staes that if you are investing 10,000 bucks per year, then in 3 years you will invest 30,000 bucks and to double that, means to make it 60,000 bucks, you need return on investment of 51.20%. I don't feel any asset class can give such assured guaranteed return constantly. If you believe then just check your investments. The stock market's behavior right now can give you heart attack.
   
   I came across many people, who have been victim of mis-selling by other advisors and they have bought 10s of insurance products for each and every member of their house and burnt their hands in this choppy market. They were shown illustrations with return of 25-26% by their advisors. This is purely illegal.
   
   Insurance Regulatory and Development Authority of India (IRDA) only allows illustration which assumes return of 6% and 10%, which is achievable too. The moment you see illustrations other than return of 6% or 10%, they are purely assumed and illegal and the advisor is mis-selling you the insurance product.
   
   Tip: Consult your friends and financially knowledgeable people and if you know the markets well, study them well and make sure you are investing in a right insurance product. Ask the upfront charges that will be deducted as "Policy Administration Charges".
   
   
5. Pay premium for only 3 years and forget it
   
   This is the sales pitch used for mass mis-selling. Unit Linked Insurance Plans (ULIPs) have a cover continuation option, which continues the life coverage of the individual, if in any case he/she is unable to pay the premium after the initial 3 years. But stopping to pay premiums after the first 3 years will not help you either.
   
   Initially, for the first 3 years, the charges are high and the amount invested is thus less. After 3 years, the charges gets reduce to nearly 1% of the premium amount and rest gets invested. But if you stop paying premiums after first 3 years, you will not build a capital in longer term (This is for what you bought a policy). If you continue to pay premiums for full premium payment term, then you can build a capital that is nearly 10-15 times of your investment in 20-25 years.
   
   I learned from my friends that advisors even guarantee a payment of 16,00,000 bucks after 20 years if you pay 10,000 bucks for initial 3 years. That's 30,000 turned into 16,00,000 (53 times approximately). My downloadable excel sheet here shows that you need 26% increment every year to achieve that target. Ask yourself, have equities given that much return with a guarantee?
   
   Tip: Whenever you choose an insurance product, foresee your expenses and plan in a way so that you can pay premiums for a full premium payment term. Don't rush in to get every new insurance product. When you hear such "sales pitches", ask for the charges straight forward and invest wisely. Don't be "Penny Wise and Pound Foolish".
   

So this was a pretty long list of some "Sales Pitches" used for mis-sellings and my tips to avoid those. Don't be trapped into those and if you save yourself from those mis-sellings, don't forget to leave a word of thank for me.