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Insurance

These days buying life insurance itself is a risk, as you can never say, for sure, if you have been sold the right product. Here are some basic guidelines to help shield you.

Ask the Agent 

What is the 'type' of policy he is recommending? Except for a ULIP (Unit linked Insurance Plan) or Term insurance, no matter how good the packaging is or how nice or how rosy the agents makes it sound – simply eject from that conversation.  Close the matter there itself. Policies like endowment, money back and whole life are wealth destroyers today. If the agents tries to sell you this – that's bad advice.

For ULIPs, what is the minimum premium to be paid for the ULIP policy that you have or are planning to buy? How much are you actually paying? If it's more than the minimum premium, well someone is making money by misguiding you. There are ways to get around - ask for minimum premium + top-up option. This works out to be far cheaper for you as your loads and expenses are lower but the agent may not like it – he loses commission. ULIP is a good idea but not for all; whether to fundamentally buy or not depends on your age, life stage and tenure of your financial goals – if the agents tell you this – that's good advice.

Is this the best deal? Does your company provide me the cheapest premium and if not – what are the additional benefits or compelling reasons to buy from you? Term Insurance is a good idea but how much insurance to buy depends on your beneficiary's capability to generate returns, your budget circumstances, future of your liabilities and overall financial situation. Again if the agents tell you this – that's good advice.

I shall write about pension policies later but for now please go back and have a look at your insurance policy portfolio.

Investments

Ask the agent 

What is the best investment to do? It is easy to identify product and commission driven agents – If immediately or within two minutes of meeting you if they jump into any product talk and sales mode just press the eject button and don’t waste further time. Unlikely that the person can really guide you well so meet the next person. You have to shop a little here.

To comment on your current investment strategy? If he tells you what your asset allocation is and how it will help you, which product will be of use to you, which is irrelevant today, which to retain (equity shares included) – that good advice. 

What is the right strategy for me? If you agents is knowledgeable and can educate you on your strategy – current and future, asset allocation required, your risk return framework and what should be the methodology suited for your requirement then – that's good advice. If he can show you a method to build wealth consistently over the next 20 or so years or as long as you want – that's good advice.

Comprehensive Advice

Ask the agent

What areas will he be able to give you advice on? If he can take care of everything i.e. budgeting, cashflow management, tax efficiency, insurance requirement calculations, retirement funding estimates, children's career funding, goal funding and planning, estate planning, portfolio management – that is ideal. If he is well qualified, he will be able to offer you wholistic and comprehensive advice – that will be good advice.

What is his method of working? This speaks of his dependability and capability. You need someone who can take care of things while you are busy with your own work and he is easily available or someone is available to answer your queries and concerns as they arise.

Ask the agent – How does he keep his knowledge updated? The power of knowledge can be easily seen – in the first two minutes of conversation even if it's over the phone. If the person has a system of doing research, uses technology and can demonstrate that – then that's good news.

Ask the agent – How will he monitor and what technology support he uses? Will he keep you updated and if yes – how? Please take time to understand agents systems & processes for execution of your portfolio. If there are none – its bad news.  If the agent can monitor your affairs independently – that’s being able to get good advice.

Remember you are not asking for much – this is quite a standard practice in most developed nations around the world. A good advisor must be able to answer to your satisfaction – only then would you judge and hire him to manage your hard earned money – isn't it?

Shortcut

If you want to skip the above – Look for qualifications & credentials and if the person is someone who is not connected with any institution there will be no chance of any bias and most likely you will get – Good knowledgeable advice.

The author, Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com.