Mis-selling of LIC policies continues
Ravi Samalad 25 March 2010

Agents are painting a rosy picture and promising guaranteed returns to clueless investors

Even as insurance behemoth Life Insurance Corporation of India (LIC) is busy bailing out initial public offerings of public sector units (PSUs), LIC agents are finding new ways to trick investors.

Meanwhile, the insurance regulator is busy issuing advertisements selling and explaining products such as unit-linked insurance plans (ULIPs) instead of cracking down on dubious selling tricks.

A source told Moneylife,”Two years back, a client was sold an LIC policy for which she made one-time premium payment of Rs1 lakh for 10 years. After the vesting period, she was promised a monthly pension of Rs5,000 (Rs60,000 annually) for the rest of her life. This sounded too good to be true. At this rate, the client’s entire notional corpus is likely to get eroded. From where will LIC fund this kind of money? It is hard to believe that the insurer would sell such a product. When we did the calculation, we found that the return being promised by the policy worked out to be 25% compounded annually. A debt-oriented product cannot offer a return of more than 6%-7%. Even equity-linked products can manage 15% returns at the most.”

Often, agents show a performance chart to the investor which is invented by themselves and not LIC. The performance chart shows impressive compounded annual growth rate (CAGR) returns of 20%-25% over a period of one year.
According to sources, agents don’t give the product literature to the investor during the 15 days of the ‘cooling-off period’ under some pretext. In this case too, the agent said that she was “busy with the financial year end” and would submit her product literature later. By the time the agent produces the documents, the investor has no option but to continue with the policy.

Numerous misleading advertisements of LIC are being circulated in regional languages carrying a logo of LIC, in smaller towns. These ads promise astronomical returns.

Apparently LIC is not responsible for publishing such misleading claims but it is the agent who takes investors for a ride. Usually the product literature is not on the letterhead of LIC.

“There are umpteen instances where clients are promised exaggerated returns. One of them was promised a return of 35%. This example is just the tip of the iceberg,” adds the source.

Earlier, LIC’s Money Plus—launched in 2007—was also rampantly mis-sold by distributing pamphlets promising unrealistic returns.

The reason for this mis-selling is the high commissions doled out to agents.

RP Sharma
1 decade ago
Mis selling of life insurance products is due to lack of proper training to the advisers.The advisers blindly follow their D.O,s thinking that they are more experienced in this field, who used to quote exorbitantly high returns to attract people as they are only concerned with sales to close targets & not with the benefit of policy holders.It is therefore essential that every insurer make sure that proper training is provided to the advisers at branch level even after passing the exam conducted by IRDA
1 decade ago
In LIC It theDevelopement officer who really get the benefit of work done by the advisers as It has been generally seen that while illustrating plas of LIC the DO is only concerned with the sale even if adviser,s 3-4 year commision may have to be returned.But these DO,s never compensate the advisers from the Bonus payment the get out of the work done by the advisers.This type of practice should be stopped and people should be educated to by insurance policies which are customer oriented& not those paying high payout to advisers.
Suresh Ramasubramanian
1 decade ago
If as sumitra swain says, certain LIC officials are engaged in misselling LIC policies, Moneylife / the Moneylife Foundation is certainly the best organization to raise this and get some reforms implemented.
sumitra swain
1 decade ago
1 decade ago
it,s not first time when LIC agents do misselling, actualy not any traning provide by LIC 4 ULIP sell.according rull every agent con't' sell ULIP, B'cause it's complicated by nature. but LIC not obserb it,rest done by D.O's he given illustration on 30-40% in compoud ratio & not show mortality charge. LIC sell mostly it's in rural area.
m k sujithkumar
1 decade ago
appoint educated people as agents as well as full time agents because lic agent people with educated background i feel never
missell as they listen to their conscience others are not
bothered as they have other lic income to fall back on if they don't get business
Chetan Bhatia
1 decade ago
The Heading should be "Mis-selling of Insurance Policies continues"

Two recent Cases:

A bank has wrongly sold a policy, with a higher cost though a much lower load was available (in an other plan from the same co) without disclosingg the load factor to a Healthy male.

Secondly a previous policy was redemed with the sales talk that its no more lucrative. The proceeds were then invested in a new plan of the same ins co. in a regular premium which was sold as a single premium. Later on the company communicated that it shall be treated as a single premium only & no further payment shall be made. However in the process did not refund the 17% odd load charged instead of 2% applicable to a single premium plan. (I have the evidence)

What say???
Yogesh P K
1 decade ago
Insurance is a tool to provide monetary protection. It can also be used to attain financial gains but it is not the best option. In India unfortunately even educated people have failed to understand this basic concept and thats why agents are able to cheat common people. LIC agents usually declares themselves as 'government insurance company' representative and take undue advantages of peoples faith by showing some unofficial statements impress and assure people with higher return. Mis-selling is a common practice in insurance sector whether its LIC or private insurance company. After all agents work for their commission and are paid only when they bring policies.
Suresh Ramasubramanian
1 decade ago
Comments by the above Shambu Nath Sah and Arvind Bamankar both use some key phrases .. in fact they seem to be copy and paste copies of each other with one or two minor word changes, like two people working from a template.

"best organisation that gives legitimate investment return", "no question of misselling", "It is not bad as you think.You should think positive". ."Personal presentation has no meaning. You should apply your mind openly, then you should criticise the LIC."

etc etc.

I have heard these very boilerplate phrases in another context too .. among agents of various MLM programs who try to convince us to park our money in their programs.

Now I know that the LIC is certainly not a MLM program. But its policies are not to be seen as investment vehicles, or even sold as investment vehicles. They are insurance policies - which means when you pay your money to LIC, your family gets a certain insured amount if you die. Which could be 25 lakhs or whatever. Similarly you can pay a non life insurer Rs.5000 a year and then you are insured against illness that requires hospitalization, to the limit of say 5 lakh rupees. But you dont get a paisa of that 5000 back.

That's fine by me. In fact, life insurance can be on those lines too, with a higher annual premium but not as high as it currently is, both by being marketed as a very sub-par investment vehicle, and by hefty commisisons to agents, management expenses etc being chopped out of the premium.

Take as much LIC coverage as would meet your projected annual income for your life. Dont try to invest your hard earned money in it by putting in more policies than are necessary to ensure an adequate future for your wife and kids.

Beyond that .. there is PPF, equity mutual funds (both of which you can buy directly, without an agent!), land, gold .. a whole lot of things you can spend your money on than waste your hard earned cash helping agents buy laptops and get sent on foreign trips by LIC.
Suresh Ramasubramanian
1 decade ago
@Manoj - not at all saying agents shouldnt get commissions. LIC needs people to market its policies so uses agents. Well and good.

Just saying that LIC should not take the commission out of the policyholder's premium. They are welcome to pay commissions, incentives, foreign trips etc out of their own pocket - from the crores they earn by parking this policy amount in the money and equity market.

None of my affair how much they pay to a agent. Just that if I want to buy a policy I should be able to buy it by myself without wasting my hard earned money on an agent and his commission.
arvind Bamankar
1 decade ago
As it seems you are totally misguided by any individual agent. Above comments are completely baseless. LIC is the best organisation that gives legitimate investment return to their customers.There is no any question of misselling of LIC PLANS.Your mind set is totally against LIC. It is not bad as you think.You should think positive.Personal presentation has no meaning. You should apply your mind openly, then you should criticise the LIC.I am fully against your view. Comments are unethical indeed.
1 decade ago
@ Suresh, Manish et al, I have one question for people like you who constantly criticise the commissions being paid to the agents. I presume you must be employed in some organisation. Tomorrow, if your organisation were to tell you that there would be no salary hike from now on, would you still continue to work there? Or worse still, if they say that based on your one year's performance, the company has not found any value addition in your work and therefore they are actully cutting your salary?? What will be your reaction?

Enough and more has been said about the commission paid out to the distributors of financial products. And most of these inane comments come from people who are employed as salaried individuals who somehow percieve the commission earned by these agents as easy money. Nothing could be farther from truth than this.

There are many products across many industries today which cost a bomb. Can we then petition these companies to cut the salary cost of the employees so that the benefit could be passed on to us, the end users? Sounds ridiculous. Right? Same is the case with insurance commissions too. An agent earns this commission. No one will come and give it to him freely.
1 decade ago
@shambhu nath sah

You are wrong . LIC policies are long term products and they are pure debt products , this in itself violates basic principles like Equity should be used for long term , given that LIC policies or for that matter any other Insurance company policies (endowment) are15-20-25 yrs policies , You tell me is it not better to invest the money every month in those mutual funds for long term .. forget risk here because in long term equity pays off and there are statistical and historical proofs .

Other point is Liquidity and trap factor . You pay 50k per year in a LIC policy and after 3 yrs when you have paid 1.5 lacs and want your money back because of some reason , how much does one get not more than 30-35% .. even in that case you dont get first year premium .

So that means 30-40k . Now what kind of product is this ?

Insurance agents are the one who earn maximum with minimum effort .

Regarding the "Returns" .. Why dont you tell us what is long term returns from LIC products or any endowment products compared to PPF , Equity funds or Balanced funds , or just take debt oriented funds .

And one personal case is enough to disprove things , if its based on fact and figures .we dont need many .

Suresh Ramasubramanian
1 decade ago
Never mind one particular agent. Whether the agent sells a good plan, or a useless one like money plus, he still ends up with a substantial commission that is taken out of the premium paid by the customer.

Now, whether it is a good investment vehicle or not, compare the typical LIC policy's returns to say the 15 year PPF. Or to various government bonds. Not even comparing these to equity mutual funds.

That is entirely besides the point though as the commission to the agent should absolutely not come out of the premium paid by the customer.

If LIC wants to incentivize an agent, they can pay him themselves. Or they can do what the mutual funds have done, abolish entry loads and let the agent work out any commission required with the customer directly.

And moreover, with mutual funds, you can buy your funds directly from the fund house. With LIC you are forced to go through an agent, there is no other sales channel that I can see.

So even if you are an informed investor and know what LIC policy to buy, you still have to shell out commission to an agent simply for buying the policy.
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