HDFC Life child plan sold to senior citizen erodes 96% of investment amount!

Another example of how a toxic product, manufactured by an insurer, sanctioned by the insurance regulator, bought through a crooked agent can destroy your savings

Moneylife Foundation Insurance Helpline got a mail from Satish Shah (name changed) who complained, “I was sold HDFC Life Young Star policy for sum assured of Rs2.5 lakh. After paying them Rs3.2 lakh for 6.25 years @Rs12,500 per quarter from June 2006, they have closed the policy and have offered me a total return of Rs11,678.17 as the value of the policy. The benefit illustration shows a return between Rs2.8 lakh and Rs3.2 lakh @6% and 10% respectively in their table of indicative return attached to the policy.” The customer relied on the misleading benefit illustration that conveniently ignored the steep mortality charges, which made up for 80% of the premium.

How did the insurance-cum-investment lose so much of value? Because of 100% loading of mortality charges due to medical condition of coronary artery disease. He says, “They wanted me to go through some tests. After the test results, they agreed to the policy with the stipulation that the mortality charges would be increased a bit - no clarity as to what the new charges would be and what would be the impact in clear terms.”

In short, the insurance company benefits by keeping the customer in the dark about how much part of the premium really goes towards mortality charges. Do you think Mr Shah would have purchased the policy if the agent had simply disclosed that out of Rs50,000 yearly premium, more than Rs41,000 would go toward risk cover charges? Instead, the agent presents deceptive benefit illustration, sanctioned by the regulator, Insurance Regulatory and Development Authority to seal the deal.

It is certainly an ingenious way for a life insurance company as they benefit with hefty mortality charges due to higher age of the insured as well as from the expensive Waiver of Premium (WoP) feature. After all the other charges of premium allocation and policy administration charges are deducted, what goes into investment is negligible and hence the corpus after seven years is dismal.

The WoP feature, which is what differentiates a child plan, is an expensive affair due to the insurer taking additional risk of paying the premium each year till maturity in the event of insured’s death. So, instead of accumulating wealth for retirement purposes, the senior citizen destroys own savings handing it over to insurance companies. After the fund value becomes smaller than the mortality charges that have to be recovered, the insurance company closes the policy and returns the remaining peanuts to customer. The game is over.

HDFC Life cooked up this product when Deepak Satwalekar was the managing director. Mr Satwalekar, himself a highly risk-averse person, was always a vocal defender of such toxic products, the majority of them sold aggressively through HDFC Bank at enormous commission to the bank, revenues to the insurer and huge losses to the customer.

The question that begs asking is “Why do senior citizens even think about buying an insurance plan and why is insurance company selling it to them?” Life insurance needs should be nil at retirement, else your retirement planning needs to be re-looked at. It is the lure of purported product returns along with hard sell of agents for their commissions that sets the trap. Customers seldom try to find out the risk cover charges. The mortality rates vary with insurers, they are allowed to charge without any cap. They rely on past claims’ experience as one of the factors.

Want to know the fastest way of losing your money quickly? Buy a child plan when you are a senior citizen. That’s the only way insurers make money quickly?

Moral of the story: Never mix you insurance and investment needs. You will get the worst of both.

Moneylife contacted HDFC Life regarding the case. Here is their response:- “We would like to bring to your notice that since Mr. Shah has already approached the Insurance Ombudsman, Delhi and Rajasthan with his complaint and the same is still pending before the Hon'ble Forum, hence we would not be in a position to provide any comment on the instant complaint, which is subsequent to the complaint before the Forum.”

yateen sheth
1 decade ago
i being an investment cosultant myself,i understand that i would first blame the company who introduced the plan before givig a proper training to the agent to sell it and the i would blame the agent who sold the plan before telling the coustomer the truth about the product
1 decade ago
I am very sure that companies like HDFC LIFE intentionally do this .I wonder if actually the "agent " even knew this was going to be the case .Surely with this coming out people have a responsibility to know what can happen if you are not careful with whom you end deal with
Krishnaswami CVR
1 decade ago
please read as : insurance is a process of transferring...
Krishnaswami CVR
1 decade ago
It is time we educate investors about two in one products. Insurance and mutual fund concepts do not go together, as the insurance if process of transferring risk to the insurer and mutual fund is the concept of risk borne by the investor. How these two diamatrically opposite concepts can be sold together as a spackage. It is high time to stop selling of this product.
1 decade ago
HDFC Life Insurance: Sir utha ke jiyo!!! 9Jine k liye kuchh bacha ho to...!!!

1 decade ago

Ajoy Saxena
Replied to PRABHAT comment 1 decade ago
redeem it as fast as u can
1 decade ago
irda was a part of this loot.b`cos who approve this product? see a bajaj Alliaz plan new Family gain in this plan allocation charges was 70% i again ask who approve this product?
it mean IRDA & cos nexus did this job to kill indian investment industry
S K Gupta
1 decade ago
These guys are thugs that the reason they keep posting great profits all the time.People In IRDA are intelligent so the don't bother what common sense says. God Bless India!!!
pannag kamat
1 decade ago
According to me govt. of India or IRDA should first stop such kind of policies. Because 95% of cases it wont benefit the customer but the company and its agent. Now a days most of the people are talking about the insurence and investment, in which they suggest not to mix both. So keeping in mind the govt. of india should take some bold steps to stop these kind mis sellings by putting an end to such schemes.
One day the national pension scheme will also do the same kind of problem. Because there is no guaranty in money return. This shows the policy makers are fooling the people of india.
ramanathan dwarakanathan
1 decade ago
This is beyond mis selling. I am equally surprised as to how did the customer sign up,when the scheme name was so glaring that it was not meant for a sr citizen.
1 decade ago
The problematic company with huge losses has no other options to do such crooked things and cheat the people.When will people realize
and act accordingly?
1 decade ago
I am a similar victim of the Canara Bank-HSBC Life Insurance Policy. the only democracy in India is the license granted by Govt to "non state actors" to loot and plunder in competition with themselves.
1 decade ago
You should always buy insurance via a term plan. If you are interested in an insurance cum investment product just research Swiss annuities. They have a better history and more investor protection. Since Switzerland has been under fire from the US for tax evasion, they have reduced the account minimums.

Insurance companies are going the way of the toxic Mortgage Backed Securities scam espoused by the large New York banks in 2007. They foisted the losses on buyers of these securities and ultimately asked the Government to bail them out while executives earned massive bonuses and commissions. This Indian Insurance industry is working on the same principles. No wonder insurance product sales are trending down due to loss of reputation. Insurance in India is a scam and very soon these companies will lose more business as well as the entire sector will lose reputation and the entire industry will shaken out. It is a matter of time. Market forces are more powerful than the regulators (who are non existent in India due to their enormous penchant for corruption). I already see people who have heard horror stories from word of mouth and have resolved never to buy an insurance product outside of a term plan. Even term plans when purchased are being done very carefully by doing a proper medical checkup and filling the form correctly and reporting any material change in circumstances to the insurer. Personally I would never deploy capital in India, especially in Insurance products where the rule of law is non existant.
Replied to Naresh comment 1 decade ago
Before 1950 there were more than 240insurance companies in India.The wise man C D Deshmukh realized the
problem and shut down all these fraudsters. It was Congress Government. The wheels have turned fully and the so called Congress government is repeating the mistake
of bringing back n number of players again and when competition
increases in our country,malpractice also shoots up
to meet the targets.The irony of the situation is the Government does not care as they want to introduce dollars by hook or crook.
Replied to milind comment 1 decade ago
C D Deshmukh was John Maynard Keynes choice to lead the International Monetary Fund. He was a great man. Insurance has always been to protect yourself against risks by paying a premium. However the concept of insurance has been bastardised. Who on earth wants insurance for investment sake? If you want to earn returns, you invest, not buy insurance! For God's sake insurance is to indemnify yourself against potential losses. I think this insurance industry should be banned from creating anything remotely connected to investments. That's not their core business. Their core business is to INSURE against LOSSES!
Pradeep R Hattangadi
1 decade ago
We keep receiving calls from these banks to sell insurance products to my mother who is 71 years old. When she tell them her age, the same persons immediately start peddling the same policy as investment.
1 decade ago
My widow sister-in-law can be added to the list of victims that too with the same institution. She was falsely coaxed into buying a ULIP scheme, investing her last income that came after her husband's demise. She has lost half of the principal amount that she invested!
Debashis Basu
Replied to Chitra comment 1 decade ago
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