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:

•  After deciding on which insurance company you want to deal with, you can get the list of authorised agents from the particular insurance company. You can ask for valid identification issued by the insurance company and IRDA license at the first meeting.
   
•  Check if the plan is present on the insurance company’s website and the benefits explained are in line with the product details on the website.
   
• Get references of the agent and ask for client information to understand the experience and quality of knowledge & credibility of the agent.
   
•  If possible, visit the insurance company branch (not the agent’s office) if you want to get a close view of the insurance product on offer—and the selling process to prospects.
   
• Some insurers may send their employees to sell a product. It may be better than dealing with agents, but neither employees nor agents are guaranteed to stay with the company considering the high turnover for these jobs.
   
• You can also purchase from an insurance broker or corporate agent after verification of their licence and if you trust them with impartial advice.
   
•  Buy online if you are aware of the intricacies of insurance policies.

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.  

•  DLF Pramerica Future Idols Gold – This product will not turn your investments into gold – This unbelievable offer was made by a person calling himself a DLF senior manager, but he sent the offer from a non-DLF email ID. This is how the scheme ‘works’—pay Rs30,000 per year for only five years. After five years, you will get Rs3,15,000. Rs3 lakh is the normal death cover for 25 year and Rs6 lakh is the accidental cover for 25 years; Rs2 lakh is the medical cover for two persons till 75 years. After 25 years, nominee will get 100% of sum assured. Even if premium is not paid for the first three years, the customer gets back total premium plus bonus. If policyholder dies before the fifth year, nominee will get pension of Rs4,500 per month for 25 years. A loan can be granted after six months for 90% of sum assured. The so-called ‘agent’ is promising to confirm all the benefits in writing on a bond paper. Interestingly, www.consumercourt.in has complaints about a similar incident involving a DLF agent who promised to give a policy bond with all the written benefits as well as a gold coin, but the ‘golden’ promise was unfulfilled even after innumerable calls from the hapless customer.

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.

• Reliance Life Money Multiplier – This will not multiply your money: There are numerous complains on website www.consumercourt.in about unbelievable promises made by the insurance seller. The offer made to a Moneylife reader is payment of premium of Rs50,000 for five years and getting Rs4,30,000 in the sixth year. The life insurance will continue for 100 years, mediclaim till age 75 and there is a loan facility. This seller will not send you an email confirming the details, but this entity is more than ready to make you meet up with one of its sales agents.

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.