The Insurance Regulatory and Development Authority of India (IRDAI) has asked Life Insurance Corporation of India (LIC) to submit a comprehensive response on 'serious' allegations made by Moneylife Foundation in a memorandum on how the Jeevan Saral policy has rampantly mis-sold with the claim that it would offer excellent returns, while in fact, older policy holders stand to lose a big chunk of the principle invested over 10 years.
Moneylife Foundation had sent a copy of the Memorandum to the Finance Minister as well as the insurance regulator. The financial services department in the ministry, which looks after insurance matters, on 28 September 2018, forwarded the Memorandum to IRDAI asking its chairman to take appropriate action. It has also asked IRDAI to inform the ministry about action taken (on the Memorandum) with regard to the Jeevan Saral policy and inform both, Moneylife Foundation and the ministry.
Moneylife Foundation has also received a one-line reply to its memorandum from the LIC chairman VK Sharma today, which says, "We appreciate the concerns raised by you in your letter dated 1 October 218. It will be dutifully looked into."
In addition to these actions, a Right to information (RTI) application had been filed with the insurance regulator to check for action on the Jeevan Saral Memorandum. In response, IRDA has provided its letter to LIC which says, "The allegations made by the complainant (on behalf of Moneylife Foundation) are of serious nature. Therefore, you are directed to submit a comprehensive response addressing all the issues mentioned in the complaint on or before 5 October 2018."
All this holds out some hope for Jeevan Saral policyholders who have been running from pillar to post for redress. Following a comprehensive and hard-hitting cover story by Moneylife
magazine (Read: Will LIC Be Made To Pay for the Horrible Mis-selling of Jeevan Saral?)
several policyholders have been writing to us to take up their issues. Some have approached consumer courts and obtained orders against LIC. However, as is the drill, LIC tends to drag all matters to higher forums including the national commission. This is a time consuming process and many policyholders are beginning to lose heart and exploring the possibility of a class action against LIC.
The Jeevan Saral product, which gobbles up hard-earned savings of policyholders (especially senior citizens) have also agitated LIC agents and their association. Despite innumerable letters, protests and objections, LIC has not budged so far. It remains to be seen if it will now be pushed to do the right thing and recall a bad product that has deliberately cheated policyholders.
In the memorandum sent to IRDAI on 18 August 2018,
Moneylife Foundation pointed out that Jeevan Saral (with profit), a traditional policy, has caused senior citizens to lose as much as 65% to 70% loss of the money invested over 10 years.
From the Memorandum, IRDAI, highlighted four points in its letter to LIC and termed them as being of a 'serious nature'. These are:
1. The proposal form did not have any provision to mention the (lower) maturity sum assured; instead it had a provision only for the higher death benefit.
2. The maturity benefit was not printed on even the policy documents.
3. The agents, as well as some LIC officers were not aware of the plan in general, and the fact that customers may get lesser money than the total premium paid.
4. The prospective customers were not informed at the time of sale that the higher insurance coverage provided by the product would lead to poor (negative for those in the higher age group) returns.
The higher insurance cover provided by Jeevan Saral policy essentially worked as a good sales pitch. The buyers were not informed that the product would give poor returns due to the same reason as the investment component was low. To make matters worse, the product gives negative returns for those in the higher age group, although said person would have purchased the product for investment purposes. Even a younger person will barely get premiums back at maturity; hence, Jeevan Saral is a bad investment product.
As highlighted by Moneylife, LIC's Jeevan Saral, which used to be a hot-selling insurance product for agents, until it was withdrawn, is a toxic product. In fact, Jeevan Saral was a traditional product that could make your premium (money paid) disappear! It happens during policy surrender or making it ‘paid-up’; but, in the case of Jeevan Saral, it has happened even at policy maturity. A senior citizen couple got just one-third of the premiums paid over the years.
"For example," the Memorandum said, "A 58-year-old person, paying half-yearly premium of Rs4,076 for 12 years, had paid a total of Rs97,824. The maturity sum assured, which was paid to him after 12 years, was a mere Rs24,575 plus bonus, amounting to Rs34,405. Even though the maturity amount was mentioned in the policy document, it was missing in the proposal, which only specified the death sum assured of Rs1.25 lakh. As the proposal did not mention the pathetic maturity sum assured, it tantamount to mis-selling by LIC itself. The policy was sold with inaccurate and misleading proposal form!"
Taking advantage of gullible Indians blindly buying LIC’s products, the behemoth sold a toxic product, with the misnomer Jeevan Saral (meaning ‘life simple’), which became a hot-selling insurance product for agents, until it was withdrawn in December 2013. The product ran for nine years selling almost 50 million policies.
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