Sucheta Dalal :Mis-selling of LIC policies continues
Sucheta Dalal

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Mis-selling of LIC policies continues   

March 25, 2010

Even as insurance behemoth Life Insurance Corporation of India (LIC) is busy bailing out initial public offerings of public sector units (PSUs), LIC agents are finding new ways to trick investors.

Meanwhile, the insurance regulator is busy issuing advertisements selling and explaining products such as unit-linked insurance plans (ULIPs) instead of cracking down on dubious selling tricks.

A source told Moneylife,”Two years back, a client was sold an LIC policy for which she made one-time premium payment of Rs1 lakh for 10 years. After the vesting period, she was promised a monthly pension of Rs5,000 (Rs60,000 annually) for the rest of her life. This sounded too good to be true. At this rate, the client’s entire notional corpus is likely to get eroded. From where will LIC fund this kind of money? It is hard to believe that the insurer would sell such a product. When we did the calculation, we found that the return being promised by the policy worked out to be 25% compounded annually. A debt-oriented product cannot offer a return of more than 6%-7%. Even equity-linked products can manage 15% returns at the most.”

Often, agents show a performance chart to the investor which is invented by themselves and not LIC. The performance chart shows impressive compounded annual growth rate (CAGR) returns of 20%-25% over a period of one year.

According to sources, agents don’t give the product literature to the investor during the 15 days of the ‘cooling-off period’ under some pretext. In this case too, the agent said that she was “busy with the financial year end” and would submit her product literature later. By the time the agent produces the documents, the investor has no option but to continue with the policy.

Numerous misleading advertisements of LIC are being circulated in regional languages carrying a logo of LIC, in smaller towns. These ads promise astronomical returns.

Apparently LIC is not responsible for publishing such misleading claims but it is the agent who takes investors for a ride. Usually the product literature is not on the letterhead of LIC.

“There are umpteen instances where clients are promised exaggerated returns. One of them was promised a return of 35%. This example is just the tip of the iceberg,” adds the source.

Earlier, LIC’s Money Plus—launched in 2007—was also rampantly mis-sold by distributing pamphlets promising unrealistic returns.

The reason for this mis-selling is the high commissions doled out to agents.
Ravi Samalad 

-- Sucheta Dalal