Life Insurance Corporation of India’s (LIC's) Jeevan Saral used to be a hot-selling insurance product for agents, until it was withdrawn. The product gave higher insurance cover which helped as a sales pitch. But did the agent or the buyer know that the product would give poor returns due to the same reason as the investment component was low? Worse, the product gives negative returns for those in the higher age group, although the person would have purchased the product for investment purposes.
Ironically, even the agents who sell such products may not know that the customer may get lesser money than the premiums paid. It defeats the purpose of buying an insurance product with investment as a goal. It also shows that even traditional products, and not just unit-linked insurance plans (ULIPs), can give negative returns. Stay away from traditional products (endowment, money-back and whole-life) as well as ULIPs.
Even an LIC branch head was clueless about Jeevan Saral giving negative returns and sought clarity from his higher-ups. Welcome to traditional products which can make your money 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 has got just one-third of the premiums paid over the years.
For example, 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. While the death cover of 15 times the premium is good, it leads to hefty negative returns due to higher mortality charges for senior citizens. Some policies even have 20 times the premium as cover for senior citizens which would mean even lower returns. Even a younger person will barely get premiums back at maturity; hence, Jeevan Saral is a bad investment product.
Maturity Sum Assured Versus Death Sum Assured: Jeevan Saral has two different sums assured: death sum assured and maturity sum assured. A layman would not know the difference and would assume that he/she will get the sum assured (death) plus bonus, on policy maturity. Even a financially literate person may miss it, as the LIC proposal form only has field for death benefit sum assured. So, paying close attention to the policy document specifying the maturity sum assured is important when it varies from the death sum assured.
Proposal Form: Jeevan Saral was sold to a senior citizen couple without informing them that the maturity amount will be far lower than the total of the premiums they paid. It is unfair disclosure, as the customer is usually unaware of the maturity sum assured being at variance from the death sum assured. The couple filled the proposal form which only had death sum assured specified. The maturity sum assured was not mentioned in the LIC proposal. This is misleading. The maturity sum assured was in the policy document, but most policyholders do not look at the policy details.
Branch Office Surprised with Negative Returns: That Jeevan Saral can give negative returns for those in the older age group may not be known to agents or even at the branch office level. The head of an LIC branch wrote to the divisional office, seeking the reasons for a customer getting only one-third of the investment amount. He wrote, “People trust and have faith in LIC for investments. If their savings is not protected, then how can we market other products based on promises of loyalty expected for LIC schemes?” If the seller and their branch heads do not know about product returns, what can be expected from a lay customer? In brief, Jeevan Saral is a not so ‘saral’ aproduct.
Mumbai Ombudsman Rejection: The senior citizens did not get justice at the Mumbai ombudsman, despite getting a paltry one-third of premium at maturity. The ombudsman’s decision states: “If the insurance company has paid the amount as per policy conditions, it is not possible for us to entertain your complaint. However, you may approach any other Forum/Court for the redressal of your complaint.”
Hyderabad Ombudsman’s Favourable Decision:
The Hyderabad insurance ombudsman’s office has given justice to a policyholder in a similar case. The Deccan Herald newspaper, on 20 January 2016, had a news report regarding Jeevan Saral. It drew attention to the decision given by the ombudsman in the policyholder’s favour. The policyholder did not receive the amount promised under Jeeval Saral. He stated that LIC had advertised Jeevan Saral in newspapers in 2002. It had claimed that the scheme offers higher returns to the insured. The complainant stated that he paid Rs48,040 as premium, while the maturity amount was Rs34,894. He was told that the sum assured was Rs1 lakh and, hence, was expecting that amount.
Hyderabad ombudsman's order procured under RTI reveals that during the hearing, the representative of the insurer stated that non-specifying of the correct maturity benefit was a typographical mistake that occurred during the printing of the policy document. Does it also mean that not specifying the maturity amount in the proposal form is also a mistake from LIC, as the proposal form does not have separate fields for maturity and death sum assured? The ombudsman ordered LIC to pay Rs1 lakh to the insured. It is strange that the Mumbai ombudsman refused to reopen the case even when the policyholder provided details of the Hyderabad ombudsman’s decision against LIC.
High Court (HC) Decision: After the Hyderabad ombudsman’s decision asking LIC to pay Rs1 lakh to the insured, the LIC divisional manager filed a writ petition in the HC. The Dharwad bench of the Karnataka HC imposed a fine of Rs10,000 on LIC for filing a writ petition against an order of the ombudsman. The bench order procured under RTI states that the insured is at liberty to levy execution and attach the property of the petitioner LIC, if LIC failed to pay the sum.
So, there is hope for Jeevan Saral policyholders. But one successful case does not entail its applicability to all policyholders. The Insurance Regulatory and Development Authority of India (IRDAI) should intervene and help policyholders. After all, IRDAI is also to blame for approving a toxic product, knowing that senior citizens will end up losing their hard-earned money.
Product Suitability and Customised Benefit Illustration: IRDAI Protection of Policyholders’ Interests Draft Regulation (2017) dropped the ‘suitability’ regulation which was present in the 2014 draft. It said: “The insurer, insurance agent and the insurance intermediary shall also ensure the suitability of the product with relevance to prospects’ income, personal and family circumstances, life stage, financial goals and risk appetite.” If such a regulation is enforced, products like Jeevan Saral will never be sold to senior citizens.
Giving a customised benefit illustration can help the customer understand the exact charges which will be incurred for risk cover leading to lower returns. But if a senior citizen is shown the generic benefit illustration applicable to a young person, isn’t the life insurance company mis-selling an unsuitable product?
Protection of Policyholders’ Interest Draft Regulation: IRDAI Protection of Policyholders’ Interests Draft Regulation (2017) has dropped the key rights which were present in the 2014 draft. Right to professional diligence, right of fair disclosure, right to receive suitable advice and right to protection against unfair contract terms are some of the rights that are missing. If IRDAI alters the pro-consumer clauses, who can you blame, if the intermediaries mis-sell the product?