iMaximize: ULIP for Online Buyers with No Allocation Charge

Posted on August 30, 2011 by Ranjan

ULIPs (Unit Linked Insurance Plan), though conceptually a good financial product which covers both insurance and investment needs, have earned bad publicity due to their heavy front loaded charges. Life Insurers have charged very heavy premium allocation charges initially. And when some Insurers advertised zero premium allocation charge, they tricked the investors by charging a heavy administration charge and not disclosed properly. Relevant posts Link, Mis-selling ULIPs

However AEGON Religare iMaximize Plan offers to maximize your investment by charging you zero premium allocation charge. And the policy administration charge, though a tad high at Rs 100/- per month is reasonable. And if you are net savvy, you can avoid the trouble of going through agents and get yourself insured directly, through their direct sales channels. The experiences of buying from Aegon Religare has been good and it is not only simple but also available at your finger tips.

We had the opportunity to ask Mr. Yateesh Srivastava, Chief Marketing Officer, ARLI a few questions about their online channel and here are his responses. Mr. Srivastava has 21 years of work experience spanning general management, marketing research, advertising, online and digital publishing and marketing financial services. He handles the areas of branding & communication, corporate communications and customer engagement at AEGON Religare Life Insurance.

Question 1: ARLI is betting big on the online space and has the first mover advantage. How has been the mortality experience of this class of online buyers? Is it better than the mass mortality experience?

YS: Overall while it is too early to make a definitive comment, as the numbers of claims are few it, prima facie, does appear that the mortality experience on the online portfolio is better than that of the offline portfolio.

2. Do you give discounts on the mortality table for online buyers since they are better informed, educated, tech savvy and have better income?

YS: Yes and this has been built into the pricing. The iTerm mortality table for online buyers has also been applied to online buyers for the iMaximize Plan.

3. Can we quantify the savings on the distribution expenses because of online buying?

YS: Distribution expenses are quantifiable, as they consist of fixed expenses operational plus commissions. Taking out the marginal operating and marketing expenses, these savings are passed on to the customer to create a differential price advantage.

4. The claim performance was initially a put off. What is being done to streamline the claims process?

YS: I understand your concern. However it is important to understand that new life insurance companies have to investigate early stage claims. A number of cases that have been repudiated, have been found to be fraudulent and some others have been rejected, as they were claims made in the exclusion period. To back this fact up, I would like to state that none of our claim decisions have been overturned by any competent regulatory authority. The claim experience in the online space is an 80% payout. The company is tackling the issues of claims proactively by educating customers about disclosures etc.

5. Can there be a special assurance from the management for our readers in case of any problems in buying and servicing their ARLI policies?

YS: A special assurance is required in case of major problems in buying and servicing of policies. This is not something that we have experienced. We have a regular complaints and grievance redressal process and in the case of the online space we probably provide the highest level of service to our customers. This is borne out by lack of complaints and high persistency in this portfolio.

The Features of the iMaximize plan

Any experiences of buying this product? And what’s your take on combining insurance and investment?

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Open Letter to Kamesh Goyal, Bajaj Allianz Life Insurance CEO

Posted on September 25, 2009 by Ranjan

Dear Sir,

In an interview published in Economic Times, you say that “I think, this suggestion copying what is done in New Pension Scheme and Mutual Fund sounds a bit far-fetched”

This was part of an answer to the question on agency commission to be removed from 2011 and replaced with a fee-based system from a panel headed by PFRDA chairman D Swarup.

My question to you is “Why are Insurance companies trying to sell Insurance in the garb of Investment products?”

Especially, since Insurance and Investments are two different products, to my mind. Should one mix Insurance and Investment and Insurance v/s Investment

I find it paradoxical that you try to compete with investment products and then complain too.

Regards,

Yours faithfully

Ranjan Varma

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Introducing India’s Online Insurance Community

Posted on August 27, 2009 by Ranjan

BimaWorld is a new online Insurance Community in India. They have useful articles and discussions happening online.

Btw, they also picked me as the winner of the “Question of the month” contest. (Vanity strikes!)

I asked Devanand Agarwal, the Cofounder, Bimaworld about how he’s going to build this community. Here’s the questions and his answers:

Q. 1. a) What prompted you to start your website?

Information is the key to make a wise decision. Websites are very handy in spreading the information. Also masses are not yet conscious about insurance. Like any other subject, insurance need to be talked about, discussed & debated, and website can be a very ideal platform for this. Also absence of an advisor cum expert agent, lack of flow of correct information, wrong selling of policies, poor after-sales service and No-claim Assistance promoted us to start our website.

Q. 1. b) What motivates you to keep on going?

Positive responses from insurance seeking community and insurance industry professionals who are not internet savvy but have years of experience in insurance. They have shown willingness to join bimaworld and help community. Soon we will launch a special expert consultancy section where anyone can communicate with our panel of elite members. Kolkata Blogger’s Meet Aug’2009 was very motivating and reaffirmed us that the decision to start an online community was right. Seeing our website taking practical shape and our teammates filled with innovative thoughts, dedication energizes us to continue further.

Q. 2. Why is it that, generally people avoid or have a fear of financial planning?

Liquidity Crunch, Small Savings, Irregular income, Lack of Knowledge, numerous products to choose, Inability to figure-out phases and needs for life that may arise in future, Insecurity of parting liquidity- Stories of Cheat fund Companies, no- corrective measures from Government agencies, judicial delay and Limitations thereto.

Q. 2. b) What is the fundamental problem?

Lack of knowledge, inability to figure-out phases and needs for future are basic issues.

Q. 3. The aim of your site is to help people make an informed decision about their insurance. But the present information asymmetry between buyers and sellers is huge. Do you see the internet making an impact on reducing the information gap?

Yes, to a large extent.

Information on net are numerous and available in text, blogs, forums, graphic, article, videos forms, the users are also getting more and more friendly to these modes. But explanation in simpler terms and its complete understanding is still a concern for all, alike approachability and shortage of time; which we will make easy and happen for the masses.

Q. 4. What role do you see for offline seminars and workshops rather than online education?

Motive of both Online and Offline system is to sell across the message “to the point”.

Online is getting personalized and also picking-up its momentum but offline workshops and seminars are more powerful & very much acceptable to the masses, a lot of live interaction takes place and thousands of unknown questions are answered at a time.

Q. 5. How would you advise? To have one personal finance consultant who maintains your money or have an insurance consultant, Mutual Fund advisor, Stock Broker separately?

A Personal Financial Advisor can be said “Jack of all but Master of none”, who can give an overall suggestion on investment pattern and help in choosing plans.

But like others, he would be having his limitations depending upon his capabilities, skills and understanding. Separate consultants like insurance consultant would be more advisable because of their specialization with compulsion to answer comparative views on other financial products.

Moreover claims handling, policy servicing and suggesting skills are the areas which gives an edge to the insurance consultant over a personal financial advisor, 90 times out of 100.

Q. 6. Do you visualize a growing use of personal finance software to track and manage money in India?

Yes, people in India are trying to have a system to track their business, money, investment, budgeting pattern etc. further MIS reports are getting more popular among individuals alike Corporate investors.

Q. 7. The Regulators are cracking the whip on Asset Management Companies and Insurers. What’s your wish list from the IRDA?

It is an important job and duty of the regulatory body to perform.

The concern is that for public money, which for all times should be protected.

But they (Regulatory) have their own limitations apart from the political and judicial system being very slow in implementing its decisions and setting an example before all. Wish list –IRDA- none this time

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How is Buying Insurance Different from Buying A Car

Posted on August 20, 2009 by Ranjan

What makes a financial product different from a car, TV or any other consumer items?
The most important difference is that while a Car is bought, an insurance policy is sold.

Moving on, the most plausible reason, I can think of, is that every Uncle/Aunty/Kid in the neighbourhood and family knows when you buy a car, microwave, etc. But what when you buy insurance?

Consumer items enjoy what I will call a “Social Transparency”

My friend/buddy (we’ve known each other from Std. I), told me how he got sold on to ULIP a few years back. Even though he knew that I knew a lot about insurance, he didn’t bother to check with me. To this date, I have hardly helped any of my friends and relatives about their insurance decision even though I could be a trusted guide. Some of them did check out if they had made a right decision, though!

And then, the competition between the Retail Resellers in the consumer items is very huge and they will not like any adverse publicity.

But competition is there in the Insurance industry too, you would argue.

Yes, but by promoting ULIPs and not term insurance, the Insurance companies are not selling the best product that is available for the customers. So competition is not really helping the consumers, I would venture to say.

Ideally, the internet and the competition should help buyers make more informed decision about their insurance cover. But hiding behind the jargons, the information asymmetry is refusing to budge!

Will more of social transparency help? What do you think?

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Wrong Question: Should One Mix Up Insurance and Investments?

Posted on August 6, 2009 by Ranjan

This is further to my post on Insurance v/s Investments

A friend pointed me to this question posed at BimaWorld: Should one mix up insurance with investment? why yes and why no”. If I have INR 1,00,000 per year for investment, insurance and other savings how should I balance my investment and insurance.

Insurance and Investments are two different things. Insurance depends on your economic value to your family. Investments depend on your surplus income and your financial goals. So, to my mind, mixing up the two is misleading.

But in India, this mix up is common place. So even though the question asked may be misleading, it really begs for an answer!

So if I have Rs 100000/- with me, I would first figure out the amount of cover that I require. I will take my annual income, multiply it with 8*, add liabilities and reduce assets to arrive at the figure.

Let’s take an example: Annual Income: Rs 5 lacs, Assets: Rs 10 lacs, Liabilities:Rs 5 lacs. So my approximate cover would be 5*8+5-10 = Rs 35 lacs.

*There are a lot of variations in calculation of the insurance cover by the Insurance companies. Multiplying the annual income is the most debated one. I use 8 years because I feel that this is enough for my family to start generating income on their own after a gap of 8 years.

Some Insurance Companies recommend multiplying the annual income by 18-20 times! There would be a real hazard of doing away with the spouse!!

Now for an Insurance cover of Rs 35 lacs, there would be a range of products that could cost you from approx. Rs 10-15000/- to over Rs 1 lac.

I would recommend taking a term insurance cover for Rs 35 lacs paying a term premium of Rs 10-15000/- and invest the balance in low cost Mutual Funds/ETFs.

But I would also recommend checking out your risk profile and learning the relevant asset allocation rules before you go on to invest your money.

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Have you figured out the difference between Insurance and Investments

Posted on July 9, 2009 by Ranjan

The Simple Dollar reviews The Total Money Makeover and even though these are US figures it applies much the same to India. Here’s an excerpt (a point I keep harping upon):

All of the [extra payments beyond the price of term insurance] per month disappears in commissions and expenses for the first three years;

after that, the return will average 2.6 percent per year for Whole Life, 4.2 percent for Universal Life, and 7.4 percent for the new-and-improved Variable Life policy that includes mutual funds.

These statistics are from Consumer Reports, Consumer Federation of America, Kiplinger’s Personal Finance, and Fortune magazine, so these are the real numbers.

Additionally, a recent article in National Underwriter, The Industry Mouthpiece, showed charts of returns from fourteen national companies. The returns they show average only 6.29 percent over twenty years. [...] Worse yet, with Whole Life and Universal Life, the savings you finally build up after being ripped off for years don’t go to your family upon your death; the only benefit paid to your family is the face value of a policy [...].

The truth is that you would be better off to get the [inexpensive] term policy and put the [extra payments beyond the price of term insurance] in a cookie jar!

That pretty much sums it up. If you want insurance, buy bread-and-butter term life insurance. If you want an investment, buy an investment from a brokerage with low-cost investments . Mix the two and you’ll find yourself eaten alive by fees and commissions.

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