Ajay Devgn, in Bol Bachchan, keeps speaking funny English. In one such line, he said something that set me thinking. It is a reflection of poor levels of financial literacy in our country. While talking about "honesty", he said, "Honesty is the best mutual policy." Many would have ignored it, but being what I am, I could not. It hit me very hard.
What he tried to do was to combine the two products "mutual fund" and "insurance policy" to come up with "mutual policy".
Incidentally, I have come across many, who cannot make out the difference between the two - IRDA may think otherwise. It also means that people are sold ULIPs in the name of mutual funds, even today. Mutual fund's reputation got negatively affected thanks in part to the insurance industry's mis-selling.
A mutual fund is an investment vehicle, where instead of managing money ourselves, we trust the same with a fund manager. The fund manager is a professional, who spends full time managing our money. he is also supposed to be more qualified and skilled in this activity than most of us.
An insurance product, on the other hand, protects us (or our surviving family members) financially in case of an unforeseen situation, called risk in insurance language.
However, most of the products sold by the insurance industry are of a hybrid nature, combining investment along with insurance. Most of us have a poor understanding of the whole concept and we want some part of our money back from the insurance company in case we survive through the term.
Insurance company and the agent (or a company or a bank acting as a sales agent of the insurance company) love this fact. They make more money for the same risk cover that the insurance company has to provide us when we buy an investment-linked insurance policy as against a pure term insurance. A pure term insurance pays our family members (the nominees) in case of death of the policy holder during the term of the policy. If the policy holder survives through the term, the insurance company has to pay nothing. However, in case of all the investment linked insurance policies, there is some survival benefit.
We love this survival benefit, as if it is some sort of a benefit. If someone puts the numbers on paper and does the calculations, it is obvious that these investment linked insurance products are not beneficial for the policy holder.
Investment linked insurance products are all those products other than pure term plan. All these products return some money when the policy matures. These policies come in various avtars - ULIP, endowment plan, money-back plan, children's plan, whole life plan, etc.
If you seriously want insurance cover, go for the term insurance ONLY. Else, whilc "Bol Bachchan" may be a laughter riot, insurance is no laughing matter.
What he tried to do was to combine the two products "mutual fund" and "insurance policy" to come up with "mutual policy".
Incidentally, I have come across many, who cannot make out the difference between the two - IRDA may think otherwise. It also means that people are sold ULIPs in the name of mutual funds, even today. Mutual fund's reputation got negatively affected thanks in part to the insurance industry's mis-selling.
A mutual fund is an investment vehicle, where instead of managing money ourselves, we trust the same with a fund manager. The fund manager is a professional, who spends full time managing our money. he is also supposed to be more qualified and skilled in this activity than most of us.
An insurance product, on the other hand, protects us (or our surviving family members) financially in case of an unforeseen situation, called risk in insurance language.
However, most of the products sold by the insurance industry are of a hybrid nature, combining investment along with insurance. Most of us have a poor understanding of the whole concept and we want some part of our money back from the insurance company in case we survive through the term.
Insurance company and the agent (or a company or a bank acting as a sales agent of the insurance company) love this fact. They make more money for the same risk cover that the insurance company has to provide us when we buy an investment-linked insurance policy as against a pure term insurance. A pure term insurance pays our family members (the nominees) in case of death of the policy holder during the term of the policy. If the policy holder survives through the term, the insurance company has to pay nothing. However, in case of all the investment linked insurance policies, there is some survival benefit.
We love this survival benefit, as if it is some sort of a benefit. If someone puts the numbers on paper and does the calculations, it is obvious that these investment linked insurance products are not beneficial for the policy holder.
Investment linked insurance products are all those products other than pure term plan. All these products return some money when the policy matures. These policies come in various avtars - ULIP, endowment plan, money-back plan, children's plan, whole life plan, etc.
If you seriously want insurance cover, go for the term insurance ONLY. Else, whilc "Bol Bachchan" may be a laughter riot, insurance is no laughing matter.
Dear Sir,
ReplyDeleteI appreciate your thoughts.
Unfortunately BOL Bachans form Insurance industry are accepted well by even educated customers who keep buying such policies. Guess what they do with illiterate investors.
Two recent experience.
1) I have suggested my NRI client to open a new bank account in HDFC or ICICI bank so we can start online MF investment. Next day he visited HDFC bank near to his home. He immediately called me from Bank, Guess for what ?
He asked me on phone ' Hemant , how is HDFC Crest Plan ? I wish to buy this as bank representative is saying that it is closing in this month. I asked my client ' have you opened the account ? He said not yet as they will give me form for opening in sometime. - a customer is being sold Insurance by banks like it's a Best Seller Book or a Must watch Movie. IRDA, RBI & SEBI or whoever regulators do not take it seriously.
2) Another client who works in IT sector age 48 called me few days back. He holds MF portfolio worth 30 Lacs and SIP of 45 K per month. During our meeting he shown me a pamphlet of LIC Agent ( Veteran Bol Bacchans - who never sale Term Plan ) claiming "Jeevan Saral" assuring 10% returns.
A client of mine was ready to accept that it's
True as the name is LIC, I had shown him math based calculations and LIC official Sercular about returns on policy.
I tried to He asked me to send similar LIC policy quotes and comparisons which I have sent him.
I being his financial consultant for last 6 years plus time, tried to do a good job for him by educating about his insurance need and asked to take Term insurance.
Now through one of my office executive I come to know that he had bought this policy with Monthly premium of 20 K per month from that LIC agent.
Bhagwan Bhala Kare.
Some time I feel that I am doing a mistake by not selling such easy sales ( Mis selling ) of Insurance products with high payouts. It also affects my income as distributor as the opportunity gone to LIC Agent.
But " Yeh Dil he ke Manata Nahi ".
I willingly can't do this.
Regards
Hemant Powale
Financial Planner