1. #1

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    Buying Life Insurance: Questions you must ask your agent

    Insurance policies are used as an investment product in Pakistan. These policies are sold through online as well offline modes. As far as leading life insurance companies are concerned, insurance plans are sold through offline mode. Whenever you buy an insurance plan through your agent, you must ask the following questions:

    Why is the agent selling you insurance as an investment product? This is the first question that you must ask you agent. Insurance is not an investment product but in Pakistan it is often pitched as an insurance product. You should not buy insurance for investment. It is always better to buy term insurance and then invest savings in premium somewhere else for return generation. But if you have decided to buy insurance as an investment product, then you must ask below mentioned question to the agent.

    How is the bonus offered in insurance policy calculated? Whenever you buy a traditional insurance plan i.e. endowment plan or money back plan, you must ask your agent how is the bonus paid in the policy calculated. Most of the traditional insurance plans pay simple reversionary bonus which means that bonus paid is like simple interest. The bonus received by your policy is not compounded at all in the simple reversionary bonus plan which means that if you receive Rs. 20000 as bonus in the first year and the policy has maturity term of 20 years, then the first year bonus remains Rs.20000 till 20thyear.

    Check whether return mentioned by the agent is actual or indicative? Most of the agents try to show indicative return as the actual return. Please note that indicative returns have to be shown as per Securities & Exchange Commission of Pakistan (SECP) guidelines but agents try to show returns which are assumed. It will be better if you go to the website of the insurance companies and check what kinds of returns have been generated by different policies. Insurance company publishes bonus information on traditional plans every year. Donít believe your agent on returns but check actual details.

    Ask him what are the services he is going to provide you and how? Agents often talk goodie goodie with you when they sell you an insurance policy but later on they even forget to call you. It is important to know what are the services paid by the agent and also how can he give you an assurance for the same. Also ask him whether he will provide regular updates on the policy and the changes made by the insurance regulator.

    These days agents use software which provides glossy reports which are good enough to confuse potential insurer buyers. What matters is not the reports generated from software but actual performance of the policies.

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