Reading the fine print!!

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Most of us enter into several contracts such as life insurance,mediclaim, investing in mutual funds, etc. Each of these comes with a huge set of documents. How many of us really take the time to read these documents before entering into a contract. Not many!!


An offer documents contains important information pertaining to your contract, which might be either not told to you or may be misunderstood by you. This information is usually in fine print.

It is very important to go through this fine print before signing any contract as this can ensure you do not land yourself and your loved ones in a financial soup in the future. We at Fpguru.com would like to bring to your notice some of the important points to be noted in certain contracts.

 

 

Life Insurance policy:


A life insurance policy functions in a simple way. You pay the premium while you are alive and your family receives the sum assured upon your death. There is nothing to miss really. However, every life insurance policy has certain exclusions, i.e. causes of death they do not cover for each person. It is very important to know these exclusions as it can be a deciding factor between purchasing a policy and not.


A simple way to read an offer document is to look for what you expect. For e.g., you may have opted for a return of premium policy which should be stated in your contract. However, your agent may have not understood the same while selling the same to you. Hence, it will pay you to read the policy before- hand than be shocked later.


In insurance you have a 15 day free look-up which helps you in such cases. If the policy is not what you were looking for, you can withdraw the same within 15 days of issue.

 

Mediclaim:

 

Now let us assume you have had a very bad bout of illness and huge amounts of funds have to be spent on the same. However your mediclaim agency refuses to furnish the claim. This maybe because of a certain clause in their offer document which states that pre-existing diseases will not be covered.

 

Different companies may have different clauses however most of them do not cover pre- existing diseases for a certain time period. They do not cover dental and cosmetic surgeries, non-allopathic treatments, etc. They also cover hospital costs only if the patient has stayed in the hospital for more than 24 hrs.  These terms and conditions are mentioned in the document and you must be aware of these to avoid a stress at the time of need.

Credit cards/loans:

 

Credit card companies are more often than not known for their heavy charges and interest rates. They have several clauses regarding repayment of outstanding credit such as ‘automatic set-off’ wherein they directly debit money from your account.


If you are offered a ‘free credit’ card or ‘no annual fee’ card, ensure the fees do not kick in after a certain period of time. Also ensure you are aware of the due date for repayment of dues.  Every card had a fixed due date and you must know yours as if you do not repay your full amount by the time of your due date, interest as high as 42% can be charged. Over and above, late payment fees may also apply.


Hence, do pay attention to all the clauses mentioned in your credit card documents.


With regards to loans it is important to check whether pre-payment of loan is allowed. If the same is allowed will the same attract a penalty or not. This is important if you plan to pay back the loan ahead of term completion. Another important factor is flexible interest rates. In the USA the sub-prime crisis occurred due to people not understanding the fine print with regards to increased interest rate post an initial relaxed period. Understanding the flexibility of rates, tenure & payment terms is essential.


Mutual Fund:

 

Most of us do not have the time to research and study the market and hence turn to mutual funds. Mutual funds may often charge very high fees, namely entry loads, exit loads, recurring fees, contingent fees, redemption fees etc. The exact amount of fees being charged to you yearly are mentioned in the offer document and one must be aware of this to know the amount of money actually being invested. One of the easiest way to understand this is to look at the expense ratio of a mutual fund.


Sometimes mutual funds may also have lock-in periods during which you cannot redeem your units and in case you wish to do so, you are charged a heavy exit load.

There are several kinds of contracts one may enter and each of them has several cleverly worded statements which can land you in stress. Hence you must read the offer document carefully and incase of ambiguity, ensure your doubts are clarified before you proceed.

 

A few hours of reading can save you and your loved ones a great deal of stress in the future!!

 

By Shalmali Kulkarni.

The writer is working as a para-planner with Fpguru.com


 

Comments  

 
+1 #1 Sakshi Shah 2012-03-09 11:24
This was really good...I got to know few things for which I had wrong interpretation...thank you..
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