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Thank God that somebody had said “One of the biggest problems of the world is that the stupid ones are damn sure and the intelligent ones are full of doubts!”, for my only claim to fame and the well of my undying self-esteem is that I am perpetually in doubt (about all the finance people) and surmised something about my intelligence. A known guy from ABN AMRO came over with an appointment “regarding an opportunity” that turned out to be the Aviva Life’s Dhan Briddhi scheme. He eloquently spoke for 5 minutes and then I spoke for 10 minutes and pushed him out before he started crying. After my MBA (Finance) I worked in merchant Banking for 3 years, then worked in IT for more than 10 years, mostly on financial systems and I spent 6 years on Insurance solutions, getting a fellow of the Indian Institute and an associate of the UK Institute on the way. Here you come, nearly 20 years of collective wisdom in 10 minutes.
I always ask people to take their life policies only and only from LIC. I do not get any commission or facility from them but in spite of the lower quality of service and often the lower standard of service from the agents (who are much lower quality than the smart and suave conmen the private insurance companies send to your home), I give this advice for a hundred reasons, chiefly :
1) Insurance is a service for which you make the payment first, only on an assurance that on some event you will get so much money. Private companies can run away. Even in USA, despite so much of regulatory controls, too many companies shut shop every year
2) Private companies (PC hereafter) always give lower returns than LIC. If you want to see the calculations (which I told the guy verbally corroborated with my detailed calculation later and the returns came out to be 3.72%). This guy tried to tell me at first that the returns will be 12-14%. If you want to see the calculation document, call me at 9477202742 or mail at sudipsam67@yahoo.co.in
3) PCs give a much lower cover per thousand rupees you keep with them. This is also true for nearly all policies. They do not want to play with lower middle-class guys, only those who can pay lakhs on the policy. But the cover is not fixed (on base) like LIC, that is generally incremental and comparatively much lower than similar policies of LIC. Actuarially, I have seen, the policies are made in the way that they would not lose much money after the policy runs for just 3 years which factor is about 7 in case of LIC (based on the policies of 15 year term)
4) PC agents often try to push some policy on the throats of the gullible people and then after a couple of years, coax them to surrender the policy and take another one because “the returns of that policy” is low. This is a very common practice. The rate of lapse and surrender are much higher in private companies in spite of much higher per capita income of the clients. One of such agents recently did the trick on a person (who is a businessman himself and a very nice man but gullible all the same) and made him poorer by at least 3 lakhs by way loss, pocketing at least a lakh in commission. The person gives policy to this agent on “sympathy” ground because he “stammers a lot” !!!
5) PC policies always try to suck as much money out of the pocket of the client because that is where the profit is. The cover, I have told already, is disproportionately low.
6) PC policies often and mostly try to tag some equity / unit investments with the policy to blur the calculation of the effective returns. I was shown another pension policy of Aviva that is a fund management type of policy and I calculated that on an average it is charging an arrayt of fees every year ranging between 9-15%. Take my word, the total fees of any fund mgt. policy worth it’s salt, should never be more than 2-4%.
7) PC agents try to promise the moon. They always say that they know the returns will be 15-18% etc. etc. I have seen some people challenge this that you give it to me in writing, they say that they can’t because of IRDA regulations. I have a loose advisory/consulting relation with Kotak life. There, we joke about this.
8) PCs, in the non-life sector, have already become notorious about refusal of claims. The time for the life sector has not come yet and will be there at least after another decade, but take my word, they will be even more notorious in that.
9) The plain truth is that, the first and the last objective of the PCs are to make profits out of you, while LIC does not really care much as it is Govt. owned and by the charter of incorporation, is based on the mutual principle i.e. 95% of the profits (after a judicious allocation to the long-term liability reserves of course) have to be redistributed to the policy-holders by way of bonus, after the Govt. is paid it’s customary 5% dividend.
The fact is that, even after I am trying to tell these things to my friends and relatives, they get overwhelmed seeing the ties and the laptops of the conmen. Invariably they ask me bout it after they have given the cheque, while I was, alas, only a phone call away. Good luck to all.
