Most consumer websites are flooded with complaints as to how they encountered agents who expose only partial facts of their policies and wait for the customer to directly get exposed to the risks. Here are some of the commonly used traps to entice the customer into purchasing policies that can harm them financially:
Plot 1: Continue SIPs for best returns:
If your SIP in an equity fund was started before August 2009 stop it and start afresh. His is because though entry loads have been removed, chances are that you might still be paying an upfront fee of 2-2.25% on your equity funds. Fund houses continue to levy entry loads on SIPs started before the Sebi made the change. If your agent was not honest about this, then it is time to take matters into your hands.
Plot 2: Bonus is bigger than annual premium:
Most agents and insurance companies use a marketing gimmick in endowment policies, of bonuses offered to policy holders. Customers are told that they get a maturity value as well as a bonus which is higher than the premium they pay. What they do not tell the policyholder is that the bonus, unlike a stock dividend, is not paid out immediately but on maturity.
The bonus amount does not compound over the years. Besides, if you get Rs 12.5 lakh as bonus on a policy 25 years from now, even a 7% inflation would reduce the value of that money to Rs 2 lakh by the time the policy matures.
Plot 3: Tax free returns from recurring deposits:
Private Banks hide the most important factor of opening a RD. It is not the tax free returns rather the TDS (Tax deduction at source) that is applicable. Be mindful when you go ahead with the bank for opening this deposit and clarify all the terms and conditions pertaining to the tax obligations.
Plot 4: Freebies for opening a recurring deposit:
Make sure you keep a track of your bank statement and make a note of all the expenses your account is being debited for. Some banks have the practice of making insurance policies or opening RDs etc, without the knowledge of the customer. If you happen to encounter such situations, make sure you inform the bank the lack of transparency it has showed in this matter cancel all your further transactions.
Plot 5: Free health insurance with credit card:
Be aware of all the documents that you sign for availing a personal loan, home loan etc. Banks in certain situations provide free services like free insurance policies, or a prepaid credit card. And upon disapproval of such service, might debit the customer. So, stay alert when you receive your account statement and ensure all the transactions entered are relevant to your expenditure and income pursuits.