Personal Finance   Exclusive
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.”

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    yateen sheth

    7 years 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


    7 years 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

    7 years ago

    please read as : insurance is a process of transferring...

    Krishnaswami CVR

    7 years 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.


    7 years ago

    HDFC Life Insurance: Sir utha ke jiyo!!! 9Jine k liye kuchh bacha ho to...!!!


    7 years ago




    Ajoy Saxena

    In Reply to PRABHAT 7 years ago

    redeem it as fast as u can


    7 years 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

    7 years 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

    7 years 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

    7 years 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.


    7 years 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?


    7 years 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.


    7 years 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.



    In Reply to Naresh 7 years 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.


    In Reply to milind 7 years 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

    7 years 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.


    7 years 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

    In Reply to Chitra 7 years ago

    Write to [email protected] Will carry an article after reviewing

    United India Insurance makes a mockery of PPN package rates

    In a strange case, the TPA of United India approved cashless hospitalisation as per a package rate for preferred provider network. But the network hospital billed the insured more than 120% of the approved amount, making a mockery of PPN package

    Moneylife Foundation Insurance Helpline received an email from Jyothi Gopal (name changed) about a strange case. United India Insurance third party administrator (TPA) Vipul MedCorp approved a cashless expenditure for her of Rs25,000 for appendicitis surgery. But United’s preferred provider network (PPN) New Hope Indian Speciality hospital billed the insured for Rs65,368.

    “I have taken United India Insurance Family Medicare Policy. My son developed sudden stomach pain in June 2012 and had to undergo surgery for appendicitis immediately. I have a floating insurance cover for Rs5 lakh. Though I had insurance cover with same company for almost 12 years, I never approached the company for a single claim. The network hospital billed us for Rs65,368 for the surgery and TPA approved cashless only for Rs 25,000. I made several representations to TPA - Vipul MedCorp and sent many mail communications, visited them and visited United India branch several times. But they kept on dragging the issue. Finally, they sent me a claim repudiation letter in January 2013. I approached United India divisional office three months ago. But, they have informed me that I should approach Ombudsman office as they are helpless since TPA refuses to oblige.”

    The question is what is the purpose of the insured going to network hospital if the TPA/insurer approves cashless for less than half of the hospital charges? If the TPA/insurer has really negotiated the package rates with the network hospital, the insured does not have to pay from own pocket.

    Vipul MedCorp’s cashless authorisation letter clearly states that the approval for cashless is as per PPN package rate. It adds, “Hospital must collect the excess amount directly from the beneficiary (NOT APPLICABLE FOR PACKAGE RATES).” What is the purpose of TPA letter specifying these words in highlighted capital letters? The case shows that the purpose of PPN hospital is defeated. Why does the insured have to suffer?

    Ms Gopal is one of many such victims of partial claim settlement even after availing of services in a network hospital. The hospital room rent was within the limit for the policy and the appendicitis surgery does not have any sub-limit. What is the value add provided by TPA if there is a colossal difference in what it agreed with the PPN hospital for package rates and what the hospital is charging the patient? Why is New Hope Indian Speciality hospital even part of the Government insurance companies PPN?

    According to one insurance broker firm, “The true value of a package with network hospitals is that the TPA / Insurers ensure that they charge as per the agreed package rate. They should not make the insured pay the difference between hospital actual charge and package rate. Where the insured is made to pay such difference he is entitled to have the same reimbursed by the TPA / Insured if there is no sub limit in the policy.”

    New Hope Indian Speciality hospital bill includes surgeon’s fees of Rs15,000, assistant surgeon fees of Rs5000 and anaesthetist fees of Rs5000, which itself equals the TPA package rate of Rs25,000 for appendicitis. Who is supposed to pay for the hospital bill charges for room, operation theatre, medical supervision, nursing charges, lab charges, pharmacy, doctor visiting charges, laparoscopy charges, ECG and Injection? The TPA and hospital agreement for package rates seems to be just a farce.

    Moneylife wrote to TPA Vipul Medicare as well as United India Insurance officials, but there was no response. Can Insurance Regulatory and Development Authority (IRDA) help to ensure that hapless mediclaim policyholders are not taken for a ride due to package rates disagreement between TPA/insurer with its own PPN hospital?

    It’s an irony that financial advisors tell customers to buy adequate mediclaim cover as part of proper financial planning. The customer buys Rs5 lakh cover thinking that they have covered their risk. But after paying premium for 12 years, the policyholder is repaid with a nasty surprise of TPA/insurer paying less than half of the hospital bill.

    The question that United India should introspect is whether it would have treated corporate mediclaim customer the same way? Corporate mediclaim customers are often rolled a red carpet with additional benefits like maternity and cashless treatment at hospitals where retails customers are kept out. It is because a retail customer does not have any bargaining power. The insurer gives a damn if the policyholder wants to renew the policy or not.

    Ms Gopal alleges that the divisional office of United India stated that they are helpless since the TPA refuses to oblige. If true, then it is nothing but a mockery of the system. When did the TPA become so powerful that they can overrule the insurance company which employs them? Hopefully, TPA’s will be cut to size soon since the new health insurance guidelines to be implemented in October 2013 by keeping them away from claims settlement. Insurance companies will be made answerable to the reasons for claims denial/partial settlement. They can no longer hide behind the veil of TPA.

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    Vijay Kumar Agarwal

    5 years ago

    Why does the insured have to suffer is my question too !! I'm also a victim to such a conspiracy between the Insurer-TPA-Hospital.

    For Laparoscopic Cholesystectomy (removal of gall bladder) the hospital gave an estimate of Rs. 150,000/- for which the cashless pre-auth approval from the Insurer/TPA was only Rs. 66000/- ( less than half of what the hospital quoted) and clearly mentioned that Non Payable amt is Rs. 84,000/- ( reason being, excess of agreed package rate) !! I was totally shocked and surprised !! I had to cancel the surgery and had to undergo mental agony and more of sufferings, and finally got it done at another hospital for Rs. 70,000/- which was fully settled by the TPA as per agreed package rate with the hospital.

    As an Insured person, we pay the insurance premium only to the Insurance company and not to the TPA.. then why is the insurer shifting the burden of replying to our correspondences to the TPA whom we never know unless they play such acts of wrong doings.

    Its a high time that such a practice be brought to the notice of the IRDAI, the IGMS, the health ministry, etc and put a stop to such over charging by the hospital and denial by the insurer to pay the hospital charges when the final bill is within the Insurance limit of the insured.


    5 years ago

    I am myself a victim of PPN. I do not know the meaning of PPN but my claim was rejected due to PPN. My son was hospitalised for a surgery. I spent Rs 63,000/- and the TPA by cash less settlement allowed only Rs 33,000/-. I have filed a case in the Ombudsman at Bhubaneswar.


    5 years ago

    It is a sheer mockery wherein in spite of mediclaim policy the insured has to pay from his pocket thereby defeating the purpose of having such policy.

    IRDA should immediately review the same and withdraw this unwarranted clause.

    Hardikkumar Thakar

    6 years ago

    My name is Mr. Hardikkumar Thaker I am from Mahesana, Gujarat

    I also suffered with UIIC and its TPA MEDSAVE. MEDSAVE's Inspector Visit the hospital and asked for a wrong persons (my agent name) name instead of hospitalized person name and then submit the paper on the name of agents and they (both) closed the file saying patient was not hospitalized and claim is wrong this companies were not reading the papers submitted by insurer and their inspectors.

    IRDA have to create some guidelines and rules in favor of customers because this companies and govt firms are working on middle class customers only.

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