Skip to main content

Fancy frills in Life Insurance covers - Don't fall

How many of you would use a mobile phone predominantly as a calculator? I guess, not many. In fact, you would be wondering if there would be anyone in this world who would answer in the affirmative to this question. Now, if I were to offer a phone without SMS or address book facility, but with a scientific calculator functionality attached, would you still buy it? Not really. Surprisingly, in the world of financial products and services, it is not the case.

Assume the margin for the distributor in selling calculator-enabled mobiles were 10 times that of selling plain vanilla mobiles phones. What would he do in such a case? Most likely, he would only sell phones that had a calculator feature attached — whether or not the customer wanted it. He would wax eloquent about the advanced nature of the calculation facility. Only if a knowledgeable customer insists, would he even show him / her the ‘simple’ phone.

An unwary customer would be subjected to a barrage of ‘features’ and ‘benefits’, without educating her on the real costs extracted by the company and distributor in providing these features. She would be shown unrealistic projections and growth rates of her corpus.

The blatant falsehoods in many of these claims would come forth only years later, by which time the agent would have long gone. The main objective of insurance, which is what the plan is meant for, would typically be given a go-by.

Welcome to the world of financial services. We all know that we need life insurance, much as we have now come to need mobile phones. Now, life insurance in itself is a complete product, where the company takes a premium from the customer, and pays a lump sum to the family in the unfortunate event of the customer’s demise.

Almost every single life insurance company has this insurance scheme — called a ‘term plan’. But for the distributor or insurance agent, this is not where the juice is.

The high-margin business for an agent is what is called unit-linked insurance plan or ULIP. Here, investment is the ‘calculator’ of our analogy, the red herring thrown in to confuse the customer. The agent would sell ULIP as a great investment plan, which also provides insurance.

Never mind, that it only provides ULIP service to insurance, just as a phone without SMS or address book would be useless as a mobile phone! Also, never mind that there are better investment plans available in the market (like good standalone scientific calculators) at a much lower price than ULIP.

There is no breach of law here. After all, it is the customer who has the responsibility of reading the fine print and being knowledgeable about various products and associated costs. The distributor would only work to maximize his income; the customer should try and protect her interests.

Thus, if she goes to a mobile store (insurance), then might as well buy a simple and effective mobile phone (term insurance policy at competitive rates). It is worth going to the adjacent shop (electronics) to buy the calculator with desired features (the investment plan). An agent who claims to fill both spaces through his product, only ends up filling his own coffers instead, at the cost of the customer.

Use UILP either as insurance or as an investment. Do not club both into one policy. If you opt for higher life cover then most part of your returns will be eaten away by mortality charges – so compromise on returns. In the same way If you want high returns then you get less life cover. So use it wisely as investment or as insurance according to your needs.

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now