Recently, I watched an advertisement by a leading insurance company where the company offered to provide emotional counseling and financial planning services to the family member in the event of demise of the policy holder. You can watch the ad on Youtube.
By the way, contrary to the impression you may get, the services do not come free of cost.
Now, the pertinent question.
Should such additional services tilt your decision to purchase life cover from this company?
Does the family need such services?
Very much, especially if the beneficiary/nominee does not have any prior experience of investing.
The loss of a family member is itself not easy to bear. If you add managing finances to his emotional stress, many may find it difficult to cope.
Therefore, the family may actually need emotional counseling and financial planning services. The spouse/family may need someone to handhold (for some time) and guide them about the investments.
Hence, I think it is great on the part of the insurance company to look beyond claim settlements.
But, there is a problem.
What will insurance companies offer you?
More insurance plans!!!
It does not matter if your family does not need such plans. The insurer will want to sell one of their own traditional or Unit linked insurance plans.
After all, they can’t ask you to invest in mutual fund. They can’t ask you to open fixed deposits. They can’t ask you to invest in PPF. They can’t even ask you to purchase an insurance plan from another company.
The insurance company has to ask you to invest you in its own plans.
Therefore, it is not financial planning for you/your family. It is sale of products for the insurance company.
Yes, the ad (and the brochure) mentions that such services will be offered by another entity.
That changes a few things.
The entity (brochure mentions about a certified financial planner) may not be bound to suggest investments from the same insurance company. Or will it be? I don’t know. We know these arrangements are always tacit and not written down anywhere.
I don’t know if the entity is actually an adviser or merely a product seller. I don’t know what is the arrangement between the entity and the insurance company. In any case, this service is limited to just one consultation. If you wish to continue, there will be cost attached.
What should you do?
The insurance company can do anything but it does not stop you from doing what you should do.
You have to take control. You can’t leave your family dependent on others. You can’t let others’ lack of ability, poor intentions and whims and fancies jeopardize your family’s financial lives when you are not around.
- You need to pass your financial knowledge (and not just your investments) to your family. I understand it is not easy but you have to try. Encourage them to read about personal finance.
- Don’t let your years of learning go waste when you are not around. You need to make your family part of investment decisions.
- Educate your spouse (family) about do’s and don’ts of investing.
- Keep a note of how your investments/insurance proceeds should be utilized if you are not around. Your spouse/family can refer to the document and understand your plans when you are not around. And yes, keep them informed about such a document.
- Discuss and explain your investments/insurance with a trusted friend/family member who can guide your family (on investments) in your absence.
- If you have sought professional help from an investment adviser/planner/agent, do include your spouse in discussions with such advisor. Your spouse may be more comfortable interacting with the adviser if he/she had prior discussion with such advisor.
I have intentionally not touched upon succession or estate planning, will writing etc. This aspect is extremely important. However, I have limited discussion to utilization of insurance proceeds and investments after demise.
What do I think of this?
My post has paranoia written all over it which may not be justified.
However, the track record of insurance companies gives little comfort. The most unsuitable products have been sold to customers for commissions. Of course, the commissions don’t go to the insurance company but they can’t be completely absolved of responsibility.
Moreover, the insurance companies may have the noblest of intentions while they offer to go beyond claim settlements and help families in additional areas.
However, the actual services are offered by the ground force/partners/agent, which may have different interests, incentives, targets. If the agent/insurance branch official has to sell you a policy to meet his/her target, your interests may be sacrificed.
Quite possible your interests may take a backseat for such officials. By the way, not right to blame the branch officials alone. Everything flows from the top.
Additionally, if you are willing to leave your family at the trust of someone you don’t know (and don’t know how they operate and what their business model is), does it not make sense to find a trusted investment advisor while you are around?
Purchase life insurance from this company if you like the product and are comfortable with the cost. Nothing wrong with that.
However, do not get enamored by these additional services and let these services tilt your decision in its favour. These services do not make the insurance company ( or the insurance product) better or worse.
Disclosure
I have limited understanding of the arrangement between Bharti Axa and ICAS India and business model of ICAS India. Additionally, I am a SEBI registered investment adviser and may have vested interest in dissuading you from seeking investment advice from insurance companies or its associates/partners.
