Financial Planning,Plan

How To Avoid Mis-Selling In Annuity Plans: 5 Things To Keep In Mind

Those looking to buy an annuity plan should be aware of the traps or enticements and understand the policy document well before making a purchasing decision to avoid troubles later.

Priyanka Debnath

Updated on: 6 September 2024 8:49 pm

5 Things to Look For to avoid Mis-selling of Annuity Plans Photo: 5 Things to Look For to avoid Mis-selling of Annuity Plans

Annuity plans offer investors a guaranteed income stream during their retirement life. However, not all annuity plans are as helpful as they sound. One of the reasons is the mis-selling of a product. Buyers can end up with plans that will not meet their needs or are laced with hidden fees and conditions. Knowing the traps in advance will help investors to avoid trouble later.

1. Understand the Plan

Aggressive sales pitches can easily make you overlook the minute yet vital details. Protect yourself by ensuring you know what you’re signing up for. Read the fine print and find out how the plan works, particularly regarding fees, surrender charges, and withdrawal restrictions. One of the most common traps is promising an astoundingly high return without risk.

2. Assess Your Own Financial Needs

Annuities are customised to your individual financial needs, especially for retirement goals. On the other hand, some insurance agents may offer you a policy that may not be suitable for your purpose but might become a high-commission product for themselves. So, before buying, check whether the annuity will provide a steady income for the period you are looking for or for a lifetime to avoid regret later. Also Read: When Do Seniors Need Insurance? 3 Scenarios Where You May Require One

3. Compare Multiple Providers

The annuity market has many products, each with a different payout rate, fees, and structures. Hence, it is crucial to compare the products of different insurers before shopping or depending on the salesperson’s recommendation. Look at the provider’s reputation and track record, such as their history of paying customer claims and financial stability.

4. Be Cautious With Unrealistic Promises

Be cautious of an annuity plan offering very high returns or hefty bonuses. In all probability, such offers may come with underlying conditions like longer lock-in periods or high surrender fees. Look for plans offering realistic returns. Terms and conditions are laid out very transparently in such plans.

5. Seek Independent Financial Advice

Always seek the advice of an independent financial adviser who does not have a direct financial interest in selling the annuity product. Their advice will guide you through any complications and ensure that the product chosen is genuinely in your best interest. Amol Joshi, founder of PlanRupee Investment Services, says, “Let’s look at it with an example: Many a time even young investors are sold annuity with ‘immediate monthly return’, or ‘Guaranteed monthly income’ or something similar. An annuity can guarantee regular income due to the nature of the instruments it invests in, such as government bonds and securities. A young investor who earns and does not need regular monthly income should invest the surplus in growth assets and aim to build a large corpus over a longer timeframe.”

Published At: 6 September 2024 8:49 pm