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!
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.
I edit Personal Finance Online Resources, nurture Financial Literacy Foundation, deliver Financial Awareness Workshops and have built a desktop RupeeManager.
Invite me for a talk. Email me on ranjan@ranjanvarma.com or Call me on +919867755615
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.