Mis-selling of Non ULIPs, Endowment Insurance ... - Personal Finance

The sale of ULIPs have come down from 75% of total sales in 2007-08 to 15% in 2011-12. Here's the reason.

Yesterday we got a call from a Tele- Caller of an Insurance Company who went on to tell us about the wonder product from HDFC Life Insurance. The product he was explaining was Sampurna Samriddhi, HDFC Life.

The gist of the plan was that you pay HDFC Life Rs 1 lakh every year, get a Rs 7 lakh cover and at the end of 7 years you get Rs 13 lakh. For this Rs 6 lakh bonus, he quoted 3% reversionary bonus (Rs 21000 x 7), 25%, Final Bonus (Rs 1,75,000) and 30% some more bonus (Rs 210000) and some more bonus!!

Warning: The gist as explained by the Tele Caller is a very misleading presentation. The website of HDFC Life does not have any such projections and clearly says that the bonus will depend on the future and not guaranteed.

He went on to explain to my patient ears how it was better than a FD in a Bank! When I asked him the rate of return that the product offered, he said the return was 13-14%.

A quick excel IRR calculation would tell you that the return is close to 16%!!

Now, how can you ignore a product that gives you life cover, tax benefits, tax free returns and gives you 16% return!! ?Agents drum up huge returns to lure unsuspecting customers. The huge commissions make them do all this imaginative presentations.

At the cost of repetition from the post on the reason behind such bold presentations, here's some excerpts of the above post:

Tele-callers are using IRDA's name to calculate a benefit illustration where the return is 10%. And they are using it for "Non Linked Products". Some more ambitious telecallers promise a return of 13-14%. Add the tax benefits, both for premium payment and maturity payments, the product becomes irresistible.

We are given to understand that Non ULIPs pay out more commissions to the Agents than the ULIPs.

We also understand that the Non ULIPs pay out bonus and that comes from the yield on the investments made by the Insurers.

Further, the yield of Insurers is in the range of 5-6% given the regulation of investing most of their money in safe non risky products that gives low but safe returns.

After making room for the Insurer's administrative and other costs, we presume that the returns offered as bonus cannot exceed 4-5%.

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Source: http://personalfinance201.com/Life-Insurance/mis-selling-of-non-ulips-endowment-insurance-plan.html

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