Recently, I was an unannounced visitor to my Aunt’s place where a bunch of people were explaining a financial product. It turned out that the people were Branch Head and Advisor of a private insurance company and they were selling a ULIP.
My Aunt is a successful Doctor and seeing me, she immediately offloaded her burden of understanding the product to me.
Even though I hate ULIPs, I pretended to be another uninformed customer. I listened to their articulate description of the benefits, their customer service policies, their ethics, etc. They said that the product will no longer be available after a week and they were interested in getting a good deal for their valued/high networth clients!
Impressed, but I did have a question for them. What were the charges?
The Branch Manager continued his rhetoric. Unlike other insurance companies they charge 0% premium allocation charge, he thundered.
He gave me the pamphlet detailing other charges like policy administration charges, surrender charges, etc.
I was intrigued by the 0% premium allocation charges and which normally ranges from 15-40% for other companies. I looked deeper for the fine print and here’s what I found.
The policy administration charge which is normally Rs 60-100 for other companies was given in %age. The pamphlet said that for a premium band upto Rs 25000/-, it would be 2.50% per month of the ATP.
ATP, I came to know was Annual Target Premium.
What it meant was that 2.5*12=30% would be shaved off your investment as policy administration charge.
So the marketing savvy private insurance company has been innovative in redesigning their product so that the noise about the premium allocation charge is addressed. And at the same time, adding back the charges in a new form!!
Interesting, No? That’s why you need to be alert all the time. Do read Manish’s Top 10 tricks of mis-selling.
Coming Soon! RupeeCamp "Financial Planning Workshop". "Join us"
Welcome back! Join me on this journey to improving our financial IQ and sharing what we know. Updates at RSS feed or Email. And spread the word please Thank You!
true.
sales people were told by shame less bosses(forest monkeys, who jump from one co/branch to other) to find such clients, known as party.
i am also one of them.
thanks for this service.
Yes customers are taken for a ride by certain companies, I don’t understand how it is been cleared by the IRDA.
Its high time that the regulator gets tougher and set the rules on various charges.
@Prabakar Agree. But the customers also need to take responsibility.
ULIPs have been mysteriously packaged.I think Indians have been confused that their wealth gets enhanced by buying insurance product. Ideally two things need to be seperated what is cost for protecting my life & what is cost for managing my funds.How would this tie up when the money is paid back to me through tax effects.How am i paying for performance of good & bad managers.Unfortunately IRDA has 1500CR but hardly spends money for educating consumers & seems more pally with Insurance cos.So enjoy the great Indian rip off.
@Mukund Thanks for the insights. These really are The Issues
I am working for a well known & leading private sector bank. We are forced to sell ULIP only for the sake of our Job. If we dont sell ULIP – they ask us to resign. In our bank – all branch staff has to sell ULIP & atleast of Rs.50K in a month. I know ULIP is costlier compare to mf and only plus point is Life Cover which MF is not offering. However is generating more revenue for Insurance Co. & Banks. So I suggest there should be strict policy on charges on ULIP.
Thanks for sharing this, Rajiv
It is high time these agents are booked for cheating under section 420. Naming and shaming such agents by publishing their name and address on this blog is also a good idea.
@Murali. There are 3 million Agents out there. I doubt if it will be possible to police them at this blog. I’ll leave it to IRDA/SEBI
This is already known to me. Ulips are beneficial for them who want to creat wealth in long term not in short term, say in 5-8 year. Being a financial advisor i suggest my customers to go for a proper financial planning and I personally do their financial planning.
Two and half years ago, I joined in a MNC just after college. Being a life science guy, I dont know much about finance that time and visited a private bank for an account. One investment advisor noticed me and start briefing about extra-ordinary returns of a policy called ULIP! After a week I went to the same bank for dropping a cheque. Same guy called me and inquired about my plan to get a policy. I said that I need more time. He ordered me that I should arrange for a cheque on the same day evening to get a ULIP policy. I was disturbed emotionally to experience a Dadagiri from a banker and left that place without making noise.
Now got some expertise in handling these third class brokers…
i agree that the charges in ulips cannot be justified to a extent its reasonable right now with fmc reduced to 4% and odd…..ulips is favourable only for along term investors who are lukin for 5-10yrs term….there are instances where ulips hav given considerably around 30-35%returns annualised on a 5 yrs term…..we should not underestimate a person or develop hatred towards that person who is advising ulips to us bcoz they have been asked by their company to do so….wont we do what our boss is askin us to do?