The Consumer Council has expressed concerns over some alleged improper sales practices in the insurance industry with consumers complaining of being misled into signing policies they did not ask for or know little about.
The problem was particularly pronounced with the sales of insurance policies as investment or savings tools given the large sums of money and long-term investments that may have involved.
Complaints about life insurance policies have topped the list of insurance cases received by the Council, with 108 in 2009 and 115 in 2011, almost half of which are related to sales practices.
Some of these cases revealed that there was a significant departure of the terms and benefits from what the consumers originally perceived, with agents' projections of benefits turning out to be assumptions rather than promises, and some consumers were not given full details when buying the policy plans.
Other complaints showed that the seniors and retirees had become easy targets for unscrupulous sales agents, as they were lured into buying the plans without knowing or understanding the content. Consumers in such situation may lose coverage if the policy's validity and accuracy is put in doubt.
The March issue of CHOICE magazine highlighted some of the cases:
Case 1
A 76-year old Mrs Lee, when trying to renew her foreign currency fixed deposits at maturity, was approached by a bank staff to buy insurance plan with a 5-year premium period totalling HK$250,000. Under the policy, Mrs Lee would only be able to withdraw the principal sum and part of the dividends after 10 years when she reached 86 years of age. Mrs Lee's family later lodged a complaint with the Consumer Council on her behalf, seeking refund and cancellation of the policy. The company was accused of misleading the illiterate old lady into signing up a policy beyond her financial means. Her family also questioned the validity of the policy, as the health declaration in the policy application form was filled with "nil" for all items, despite Mrs Lee having been suffered from liver and kidney disease for more than a decade. Yet the bank rejected the accusations, asserting that Mrs Lee's signature was the proof of her understanding of the terms and that the cooling-off period had provided ample time for Mrs Lee to consider the appropriateness of the policy.
Case 2
In another case, 61-year old Mrs Chan, in preparation of her retirement, was recommended by an insurance agent to buy a 30-month investment-linked insurance product with a monthly premium of HK$40,000. When she contacted the insurer for withdrawal at the end of the 30-month period, she was told that the plan actually covered a 20-year period with a total investment value of HK$10 million. Mrs Chan thought the plan was different from what she had asked for initially: a short-term investment plan with which the benefits would cover some expenses after her retirement at 65. Mrs Chan lodged the complaint with the Council and also took her case to the Office of the Commissioner of Insurance and the Hong Kong Federation of Insurers. The company eventually agreed to rescind the policy and gave refund to Mrs Chan.
Case 3
Mr Wong bought an insurance savings plan via the bank with an investment value of HK$1,110,000 in 2006 and 2007. The decision was based on the company's projections that the fund would be able to give a yield of 5.7% per annum, containing a guaranteed 1.95% fixed interest rate along with 3.75% rising dividends, a rate better than the current 4% for fixed deposits. Mr Wong was convinced of the plan's potential returns as he was told by the insurance agent that during the economic recession in 2003, the plan still generated an annual dividend yield of 3%. Yet at the end of 2008, Mr Wong was advised by the insurer that the fixed interest rate and additional dividends would be revised downward to only 0.5% and 1.5% respectively, and both the fixed interest rates and dividends were not guaranteed.
Mr Wong accused the agent of providing misleading information, as both the promotional leaflet and sales document only pointed out that dividends were not guaranteed but there was no mention of the fixed interest rates also non-guaranteed. The Council sent a letter to the insurance company, expressing concern about the confusing information on the fixed interest rates and dividends. In response, the company stated that there was disclaimer in the sales documents stating the company would have the final decision on the interest rates. Nevertheless, the insurer promised to record the Council's suggestion for future reference when drafting sales brochures.
Consumers are advised of the following when buying an insurance plan:
- Most insurance policies are term contracts. A long-term policy, such as a plan of 10 years or above, requires a longer period for the policyholder to recover both the principal and the benefits. Early withdrawal may incur huge financial losses for the policyholders due to the hefty administration charge and market adjustments.
- Consumers should not rely solely on the presentation of sales agent or information in promotional materials. They should request a copy of document they are going to sign and read the terms and conditions of insurance plans thoroughly before signing. They should never sign a blank form.
- Seniors may find it difficult to understand the terms of the insurance policy, and they are advised to consult family members when buying an insurance plan.
- Insurance agents are required to fill in the application form with details of the financial and health status of the prospective policyholder before recommending specific policies or plans. Consumers should verify the accuracy of the information before signing the documents to avoid future disputes.
- Past record of fund performances can only serve as reference for investment decision, never a guarantee.
- Make good use of the cooling-off period of 21 days after the delivery of policy to review the product, during which policyholders can cancel the policy and obtain a full refund of the premium paid.
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