Beware of products that promise you everything under the sun. Traditional insurance cannot give you high returns. Don’t fall for combination plans. Check out the credentials of the agent you deal with as many operate without IRDA licenses
Some traditional products can be confusing even for insurance experts. Why does the layman, who often cannot comprehend a barebones insurance product, go for a complex combination plan? Again, why are people hoodwinked by insurance plans which are simply too good to be true? In fact, a few ‘combination’ plans don’t even have their names approved by IRDA (the Insurance Regulatory and Development Authority); sometimes, these plans that are being offered by a particular insurer do not even find a mention in the insurance company’s website!
The dubious plans have names that sound genuine, and promise a lot more than what is actually offered in the product brochure. But the guiding principle remains—if an offer is too good to be true, it usually is. The irony is that a layman, who would benefit with a simple term plan to cover risk, and who can invest surplus income in FDs (fixed deposits) or SIPs (systematic investment plans) in mutual funds wants to instead dabble in insurance products that sport complex combinations. These products promise unbelievable guaranteed returns, and claim that they offer medical, pension and life insurance under one roof.
There is software available in the market which can be used to create
agent-customised combination plans. The potential customer is bedazzled by the ‘technical’ process of customisation, and signs on all the dotted lines, even if it means filling up multiple proposals for each underlying plan. A customer who may not be in a position to understand even a single product benefit, ends up buying multiple products, putting all his faith in his agent. But these returns can never be guaranteed. As Moneylife has pointed out numerous times in the past, insurance should not be looked upon as an instrument which will deliver returns. Just because an agent promises you ‘guaranteed’ returns on a policy, this should not be the basis for your investment. Your insurance agent can never take upon the role of a financial planner.
A life insurance agent spoke to Moneylife preferring anonymity, “We do create genuine combination plans to satisfy a customer’s financial plan. IRDA mandates the insurance company to show benefit illustration for both traditional and ULIP (unit-linked insurance plan) products with 6% and 10% returns respectively. A few agents will give an impression that the customer will get 10% returns—even when 6% return is also not guaranteed.”
Many fly-by-night operators don’t even have an IRDA licence. A legitimate agent (or corporate agency/broker) may have numerous illegitimate agents working for it. Often, each member of a single family take up an agent license of different insurance companies, and they cross-sell policies depending on the customer’s interest in a specific insurance company’s product. Here is how you can ensure that you do not land up in a mess while buying an insurance product:
Here are a couple of examples given by Moneylife readers about dubious agents selling insurance products with a valid product name, but promising lot more than what the product would actually deliver.
Moneylife tried calling the agent to get his IRDA license number. He said that he is from the ‘direct-to-customer’ team which he claimed does not require an agent license.
IRDA should take strict action in such cases. The agent Moneylife contacted refused to give any identification number from DLF Pramerica which proves that the offering is fraudulent. But these minor facts did not bother the agent. He boasted that his men have ‘sold 24 policies in one day’ in Mumbai alone.
According to an LIC (Life Insurance Corporation of India) official, “LIC does not promote combination plans. The plans we offer are only the ones that we publicly put on our website and we have official brochures for the same. If an agent, for example, proposes a combination of three plans and it is acceptable to the customer, we can only underwrite three plans separately and not a combined plan. We will need three separate proposals in this case.”
He recommended that customers visit the LIC website, to know about the firm’s insurance plans, contact the office or customer service number for verification and ask the agents for proper documentation and brochures of plans offered. LIC also advertises its plans in newspapers.
So keep these factors in mind before you fall for an insurance agent’s pitch—transparency is the best policy for both the insurer and the insured.
The office bearers elected are Siddharth Shah (chairman), Alok Churiwala (vice chairman), Uttam Bagri (secretary), Lalit Mundra (Jt secretary) and Dipan Mehta (treasurer)
BSE Brokers’ Forum has said that it has elected Siddharth Shah as its chairman for the years 2011-12 and 2012-13. The Apex Management Committee of the BSE Brokers’ Forum, the 742 member strong association of the trading members of the BSE has been reconstituted. The Committee consists of 5 office bearers and 17 membersThe office bearers elected are Siddharth Shah (chairman), Alok Churiwala (vice chairman), Uttam Bagri (secretary), Lalit Mundra (Jt secretary) and Dipan Mehta (treasurer).
On the development Siddharth Shah said, “It is challenging time for broking community. Apart from streamlining operations and compliance, our thrust in the coming months will be to bring back retail investor back to market, protecting investor by appropriate training and kick start BSE F&O segment.”
IDFC Mutual Fund new issue closes on 31st October
IDFC Mutual Fund has launched IDFC Fixed Maturity Plan Yearly Series 53, a close-ended income scheme.
The investment objective of the scheme is to generate income by investing in a portfolio of debt and money market instruments maturing on or before the maturity of the scheme. The tenure of the scheme is one year.
The new issue closes on 31st October. The minimum investment amount is Rs10,000.
Crisil Short Term Bond Fund Index is the benchmark index. Anupam Joshi is the fund manager.