In your interest.
Online Personal Finance Magazine
No beating about the bush.
Reliance Life’s goodwill gesture of refunding Rs3 lakh to an illiterate widow, having a handicapped son, made a wonderful New Year gift. The fund value of her ULIP was only Rs1 lakh. The case which was taken to the insurer on humanitarian grounds was solved in a couple of days
Reliance Life has refunded Rs3 lakh to an illiterate 70-year old widow with totally handicapped son. She was mis-sold Reliance Super Market Return Plan (ULIP) in December 2009. Within a couple of days of Moneylife Foundation approaching Reliance Life with the humanitarian request, the policyholder has been offered a full refund of three years (Rs3 lakh) even though the fund value is a mere Rs1 lakh. The widow has been living on a meagre income along with her handicapped son. The refund has been completed, which is like a New Year’s gift to the old widow.
An insurance agent had approached the widow four years back and explained that if she pays one lakh premium annually, the policy will provide an insurance cover of Rs8.50 lakh. In case of her death, the handicapped son will get Rs8.50 lakh and he will not have a problem of livelihood. He also explained that if she pays for three years then she can withdraw all the money, however, coverage will continue for rest of her life. On this explanation, the poor widow took the insurance with the hope that her son will have a peaceful life after her death. She thought that she would get back Rs3 lakh after three years and the insurance cover will continue till her death.
It was a clear case of mis-selling. After four years, the fund value is Rs1.06 lakh due to hefty mortality charges, other charges and equity exposure. Would the old lady have known that in the last four years, Rs1.41 lakh went towards the risk cover? Does the agent who sold the policy even understand the risk cover charges at old age; why make promise of getting full money back after three years? Does illiterate person even understand what is meant by equity exposure let alone know anything about ULIP?
But, this is how ULIPs have been mis-sold by several life insurance companies. ULIPs sold before September 2010 had gigantic front-loaded charges, which made it lucrative for agents to make false promises to sell the product by hook or crook. It did not matter whether the buyer is getting a raw deal; getting big agent commission was the sole objective.
Recently, Reliance Life call centre told the old widow that if the fund value goes below one lakh then insurance policy would auto-surrender. She was asked to make fourth premium payment to keep the policy in-force. She and her son were shocked to hear that she can only get Rs1.06 lakh back in case of policy surrender. Moneylife Foundation Insurance Helpline was approached by one of her acquaintance as she was not in a position to write.
Moneylife Foundation is glad that Reliance Life took only couple of days to make offer for refund of full premium of Rs3 lakh. She has been given the full refund. A nice gesture from Reliance Life to the old widow will be remembered by her and son for a lifetime.
The year 2013 began with Reliance Life refunding Rs12 lakh investment along with Rs1.75 lakh interest, which is about 7.5% per annum to Arvind Injamuri. He was given justice after Moneylife Foundation fought for his case for nearly a year. Mr Injamuri, 65 years old, a standard 9th failed, retired railway employee living at Solapur, put his retirement kitty in insurance products. He was given false lure of TVS Scooty Pep which was part of agent “Fantastic Contest”.
All the nine policies had been issued in the names of his family members as Mr Injamuri did not qualify for highest NAV policies. He was seriously, and correctly, worried about inaccurate personal details, wrong or unidentifiable photos, PAN details of sister when she had never applied for one and forged signatures in the policy documents have rendered them worthless, since there are bound to be issues if and when a claim has to be made.
Moneylife Foundation’s Insurance Helpline was started in 2013. We have received and solved all the 24 cases of Reliance Life insurance policy sold with a bait of fraudulent “interest-free loans” of 10 times the premium from Reliance Capital. In 23 out of 24 cases, Reliance Life’s corporate agent AB Capital was involved. The total refund made by Reliance Life has been Rs12.74 lakh. Three more AB Capital fraud selling cases have been taken up last week and we are awaiting response for the same.
Fear-mongering works well in finance. LIC offices and their agents are making last ditch efforts to push sales with display boards stating that your “favourite” traditional products are getting over.
You may have seen Life Insurance Corporation of India (LIC) agent offices putting up display boards stating that your “favourite” products like Jeevan Anand, Jeevan Tarang, Bima Bachat, etc are getting over and hence this is the time to make a buy. The limited time offers are always enticing for customers. LIC advertisements in print and TV are geared to ensure that customers bite the bait of buying the known than waiting for the unknown next year.
It matters little that new traditional products from 2014 will be better than the existing products. The prior deadline of 30th September was fabulous business for LIC with three times the monthly business for individual single premium and two times for individual non-single premium business when compared to monthly figures for pre-September 2013.
Read about the new changes in traditional products from January 2014 - LIC agents’ last hullabol for selling traditional products before service tax regime
LIC September 2013 figures show Rs2,153 crore business for individual single premium and Rs3,603 crore for individual non-single premium. The pre-September 2013 monthly numbers were approximately Rs700 crore for individual single premium and Rs1,500 crore for individual non-single premium. It is clear that LIC benefitted with Insurance Regulatory and Development Authority (IRDA) previous deadline of 30th September to make way for traditional products compliant with new guidelines. IRDA postponed the deadline to 31st December, which gives LIC another opportunity to make another last push. The sales pitch, with service tax to be levied separately, also helped with increased business and will continue till the end of December 2013.
A sudden spike in life insurance sales would make one wonder if IRDA new guidelines for traditional products are good for customer or it is just agents’ mis-selling for own benefit. LIC advertisements actually undermine IRDA efforts to make traditional products better for consumers. ‘Make a quick sale’ seems to be the mantra as insurance companies belie the benefits that new guidelines for traditional products will offer.
It is unfortunate that many single insurance products are mis-sold as the consumer is made to believe that the corpus at end of the policy term will be tax-free. These products offer low insurance cover of 1.25 times the single premium and hence tax-free corpus is out of question and even 80C benefits will be minimal.
Insurance products give you deduction of up to Rs1,00,000 from taxable income under 80C, subject to the life cover being at least ten times the premium. If it is less than the minimum, the amount that can be claimed under Section 80C for tax savings reduces appropriately. For example, if you take a single premium insurance policy with life cover of 1.25 times, then the amount claimed under 80C will be only Rs12,500 for Rs100,000 premium paid. The tax benefit at the time of maturity is not applicable in this example.
So, why are some investors putting lakhs in single premium products like LIC Bima Bachat? Are these investors under impression that they can just show the returns from the product as tax-free? So, people just don’t put the corpus as taxable? No TDS also helps as there is no tracking. Taxable corpus just flies below the radar of IT department as tax-free life insurance corpus?
Usha Sangwan, first woman MD of LIC recently told Business Standard “Our blockbuster products that are launched every year had been closed-ended products. However, one particular policy - Bima Bachat - has been our evergreen blockbuster product with risk coverage and decent returns. So, we did not feel the need for any blockbuster product this year. We will be looking at launching a variant of this product.”
“Our performance in September was excellent. Earlier rules had said the new product regime would be implemented from October onwards, and September was supposed to be the last month in the old regime. In September, we had 91% market share in number of policies. We had 100% increase in business, despite volatility in the market. We collected Rs6,000 crore of new business premia for September. With old products being phased out, we are expecting a huge rush in December too.”
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