Incompetent or Dishonest?

by Manshu on March 16, 2012

in Opinion

Malathi Madhusudhan left the following comment on my post about LIC Jeevan Vriddhi and her comment nicely illustrates why a lot of people feel frustrated with insurance plus investment products even when they aren’t particularly bad.

Here is the comment:

Hello

I would like invest in LIC – Jeevan Vriddhi plan for Rs. 1,00,000 (one lac only). Not very clear about the returns, i.e. as an agent told, after 10 yrs of investment, we get the returns of 5 times, i.e hopefully it should be 5,00,000 / -(five lacs). IS IT CORRECT ???
Also please let me know, what about the death coverage ? i.e. if any death happens in 3 – 5 yrs, will the payment of 5,00000 get immediately or should we wait til 10 years .

Please clarify the details.

thank you

If you remember this product then you will very clearly see what’s going on in here. This product gives you an insurance coverage of 5 times and then at maturity, it gives you some returns.

Those returns are not 5 times your money, but rather the guaranteed part of it falls a little under double your money in 10 years.

Now, 5 times in 10 years doesn’t sound incredibly lot and that’s why it’s easy to see how it doesn’t immediately raise suspicion in regular folks but you can’t say the same thing about agents.

Surely, it is their responsibility to figure out the difference between returns and coverage, and if they don’t even do that then what good are they?

Raj, who left good counter points to my post asked how this is possible and if this agent is a crook or is really ignorant and my first reaction was – dishonest or incompetent – those are the only choices I have?

I think this comment and the situation nicely illustrates the problem with the whole insurance environment right now, something that  Jitendra and Debasish Ray touched upon in the same thread as well.

When you ponder about these things for long you wonder about what role a blog plays in the midst of this environment, and I think more than a blog – a blog reader can make a lot of difference. This is because if you’re the kind of person who follows personal finance blogs you are probably the one in your family and circle of friends that are approached when people need a bit of advice related to money. If you are that person, then imagine how easy it is for you to help someone avoid making a mistake and make a better decision.

I’m really curious to know if you are that person and if you have experiences like this and what you think about the agent. Please do leave comments.

{ 27 comments… read them below or add one }

Hemant Beniwal March 16, 2012 at 6:55 am

Hi Manshu,
I think blog is all about blog readers & small community that is builded from them. You can’t reach everyone but they are your messagers.
Today morning I got this comment on my blog “Once again thanx for the article. It is very sad to say that not a single LIC agent has told about the term plan till date to me though I got the idea of it a few months back but alas I had also taken the insurance policies thinking it to be a safe and secured investment with a decent returns. But now I know how a foolish I had been taking 12 lic policies giving about Rs. 50000 annual premium and with a total sum assurance of only Rs. 6lacs. But never mind Ihave recently told my younger brother to take a term plan and he instantly understood the meaning of it and took a term plan of Rs 50 lacs. Now I have decided to give this advice to all and sundry.”

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Manshu March 19, 2012 at 4:39 am

I bet a lot of people have had this experience.

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moronbuffett March 16, 2012 at 9:41 am

This is the simple story I give to people who will “listen”.

In Godfather, Al Pacino will ask Marlon Brando, there is a traitor inside our group working for Barzini, I don’t know who and I dont know how to find.
Marlon Brando says, whoever brings up the Barzini peace deal is the traitor.

Any person (friend/relative/ whoever) brings up insurance idea esp in march saying it is investment blah blah is the traitor. Stamp your foot on his rear.

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Kirti March 16, 2012 at 10:16 am

This quote is about books but would like to dedicate it your blog
Books are the compasses and telescopes and sextants and charts which other men have prepared to help us navigate the dangerous seas of human life. ~Jesse Lee Bennett

When you write something which is helpful to even one person it is effort well spent. Quoting from your earlier blog post What OneMint has taught me
I set out on creating a blog that will attract smart people who realize that there are no shortcuts, no “tips” that can make them a million overnight, and I’ve been guided by the principle that I need to provide people with facts that will help them in making the final decision.

Your blog has played a very nice role in my personal financial life. I have not only learnt about finances from posts on onemint.com but also from so many readers who happily share their knowledge, ask questions which help me a lot. I have been so inspired by your blog that I started one of my own!

Thanks a lot Manshu, onemint.com and its wonderful readers.

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Manshu March 19, 2012 at 4:34 am

OneMint has some of the smartest and willing readers of any Indian PF blog. I sincerely believe that the discussions on many of the posts are a lot better than the posts themselves, and many times I come back to comments after several months of writing a post and it’s very refreshing.

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Porbu March 16, 2012 at 10:32 am

Hemant/Manshu,
I am an regular reader of both of your blogs and I would like to thank you guys for the all your efforts in trying to impart knowledge on personal finance. I do try and educate my friends, colleagues and family about the importance of having a term plan, and how we should not be mixing investment with insurance.

But 90% of them fail to understand the concept of a term plan. They do not want to pay premiums for something where their nominees will get the money only if they pass away during the policy term. What they fail to understand is that for a small premium, which might be negligent compared to some of their expenditures like clothes/cigarettes etc, they can actually secure the future of thier loved ones in case of risk to their lives.

I will keep trying. What i gain from you guys should not go to a waste and I can do my bit in helping someone make the right choices.

Do keep up the good work. God bless you both.

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Manshu March 19, 2012 at 4:26 am

Thank you for the nice words Porbu! Term plan is something that’s very deeply entrenched in a lot of people’s minds but then if they keep hearing the same thing repeatedly (that it’s cheap) it will eventually sink in.

For some of the other things I think people will be more receptive.

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Ams March 16, 2012 at 11:30 am

Manshu,
I tend to agree to what you say, but on the other hand I sometimes tend to give them a slight edge saying it is finally their business. They too are trying to make money and everything is fair in business. It is only us who have to be prudent and most importantly be helpful to other investors before we invest.
I too have burnt my fingers following these agents once by paying a premium of Rs. 43000 per annum for these policies instead of going for term plan.

So as I said before I am very happy with this post of yours as it is going to help others open their eyes before they invest.

Thanks Manshu.

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justgrowmymoney March 16, 2012 at 1:22 pm

The agent is at fault. In my opinion the agent would have been knowledgable but was knowingly misselling the product.

The investor also must be prudent and do atleast SOME DUE DILIGENCE. They must ask for IRR on policies without the double money/triple money return parlance and make informed decisions – because mis-selling does not happen without mis-buying

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Manshu March 19, 2012 at 4:16 am

For a large majority of people they won’t know what to ask and I’m sure things like IRR are unknown to all but a tiny percentage of savvy investors.

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Manshu March 19, 2012 at 4:20 am

Interestingly, I was speaking to someone about the blog and they said why don’t I write scathing articles like some other people do and then I said that I’m not that moved to write such scathing reviews because at the back of my mind I feel that people are trying to make money and looking for quick hits so it’s natural that some of those steps will misfire and they take a hit.

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vijay veer singh March 16, 2012 at 11:55 am

In this forum of finance people can anybody guide me out from this predicament. I will surely be obliged
Way back in 1982 we have taken a paltry home loan of Rs. 1.5 lac from LIC and we paid back it in 1992. But LIC has not returned our original home documents in spite of giving us NOC. On asking they told us that they have returned us on time but they were not able to produce any relevant proof corroborating this. We are constantly corresponding with them since 1997 till now but all in vain. Under RTI we have asked them to show any proof of returning home documents to us but they are unable to furnish any proof.
Now how to get my original papers from them it seems that these documents are lost by LIC . So how to get compensation and the original papers.
There is also second part to this. Recently I have applied for some loan against my home as collateral mortgage by providing a duplicate certificate issued from concerned department as my original papers are with LIC. But bank rejected it and asked for original papers giving the reason that it is not feasible to ascertain from these duplicate papers that my house is not already mortgaged somewhere.So how to give proof that my house in not mortgaged somewhere when I am unable to produce original documents. Is there a way to prove that my home is not mortgaged somewhere presently in absence of original papers

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ravi March 19, 2012 at 7:40 am

hi veer,

i cannot vouch for them {never used their services} but they seem to do some nice stuff – have a look at http://www.akosha.com/ – send them your complaint and see if they can help you – especially for part one.

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vijay veer singh March 19, 2012 at 4:37 pm

thanks ravi I will surely try my luck

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Manish Jain March 16, 2012 at 12:10 pm

Manshu,

I’m a bit perplexed with the following comment:

“…Now, 5 times in 10 years doesn’t sound incredibly lot and that’s why it’s easy to see how it doesn’t immediately raise suspicion in regular folks but you can’t say the same thing about agents.”

What? Are you suggesting that getting 5x your money in 10 years is okay? To me that is amazing performance and smells of complete fraud.

I hope I missing something here.

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Manshu March 16, 2012 at 6:12 pm

That’s a good question Manish, and a poor choice of words from me. When I re-read this here I see it does a very bad job of conveying what I had in mind.

What I meant to say was if someone had promised something like your money will triple in 3 years then that would make alarm bells ring immediately because that’s ridiculously high, but when you hear a number like 5 times in 10 years, although high, it doesn’t sound ridiculously high, and instead of alarm bells ringing – the thought of well that could be possible also enters your mind.

Essentially, I meant that while it is high, it’s not high enough to send alarm bells ringing and dismiss the claim on its face like a triple your money in three years claim would.

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Ashok March 17, 2012 at 8:58 am

Hi Manshu,

Thanks for the clarification. Even I was slightly disoriented by that line. I couldn’t understand what you were trying to convey.

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Manshu March 19, 2012 at 3:43 am

Thanks for letting me know Ashok.

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justgrowmymoney March 16, 2012 at 1:31 pm

I would assume this was a clear case of dishonesty. IRDA should provide some guidelines/standards for the sale process.

1) At the time of sale a copy of benefits in plain language must be made available. Brochure is not a replacement. This document must have the seal of the insurer, agent name, agent code and endorsed by a physical signature of the agent.
2) Post the sale process the insurer must send a feedback form online/physical mail to solicit a sales feedback. This process must be administered by independent parties. This can also help the insurers to weed out agents misrepresenting/incompetent.

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Manshu March 19, 2012 at 4:15 am

The thing is that there is a problem with incentives as well. Till the time there is a system which rewards people for selling good products, these things will continue to exist.

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Raja March 16, 2012 at 2:25 pm

Hi Manshu,

I just read this somewhere about the budget “Sale of residential property exempted from capital gains if invested in equity or equipment of an SME.”

Sometime back i have received lot follow up comments on one of your post about someone trying to sell his property in India and something related to that. Please pass on the message to keep his ear’s open on this one. Am not able to track the post, deleted the comment subscription mails too 🙁

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Manshu March 19, 2012 at 4:07 am

How nice of you to keep that in mind Raja 🙂 I think that was on the Section 54EC post and I’m going to post the details on that. Thanks so much!

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RRK March 16, 2012 at 7:26 pm

Manshu,

I did not expect my 2 liner will be a subject matter for your next blog. [ I am changing my name to RRK, to remove name confusion with other Raj/ Raja in this community ]

Appreciate your great effort in using this blog to educate investors and advisors community.

What I feel happy about this blog is
1) People like Malathi who learned about this blog and
2) Decided to seek opinion here instead of blindly going with the agent “tall claims”.

One investor saved.

Moronbuffet described a scene in Godfather. There the traitor gets shot.

There are many investors out there who are not as lucky as Malathi and signing up with the same agent for 500% return. How to stop him ?

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Manshu March 19, 2012 at 3:54 am

The landscape is improving and changing for the good I believe. There are no quick fixes to this but I believe the situation will be a lot better in the next ten years than it is now because of growing awareness and people being able to research stuff easier than they’ve been able to till a decade ago without the internet.

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Shirish March 18, 2012 at 1:40 pm

1) Those who are considering investing in LIC policies should also be aware of the malpratices of LIC and how they are misusing policyholder’s money. Please see the following article:
http://www.business-standard.com/india/news/lic-policyholders-carry-disinvestment-can/466727/
Copy paste in your browser and read the article.

2) Insurance companies are packaging their products in many new avatars to attract the investors. Guaranteed highest NAV, periodic bonuses and many other jargons are used to sell their product. However, it has been proven beyond any doubt that combining investment and insurance in any product of any insurance company gives lesser returns than taking life insurance thru’ term plan and investing in MF thru SIP, using the same amount of money.

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Gomathi Shankar March 18, 2012 at 3:40 pm

I had an endowment policy from LIC taken some ten years back.Last year when i wanted to surrender the policy,i came to know that agent’s signature is mandatory for surrendering the policy.To my dismay i could not find the agent who sold me the policy and none of the other agents were willing to sign my surrender form.With great difficulty i convinced my dad’s friend who was also a LIC agent to sign my form.Have anyone come across a similar situation?How to surrender a policy if no agent is willing to sign?

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Jitendra P.S.Solanki March 18, 2012 at 5:56 pm

Gomathi,

Generally in surrendering the policy you do not require an agent signature.However, not sure about LIC procedure.If it is then its surely a big dissapointment as most LIC agents deny this to their customers.

You should check with LIC about the complete procedure.

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