Life Insurance-How your agent may manipulate returns?

Whenever you meet any insurance agent he will show you plan presentation with returns %. But have you gone through how actually he calculate returns? I think not many. So in today’s post let us see ways of manipulation of returns by few agents 🙂

1) Bonus Rates-This applies to traditional plans. Because in traditional plans your returns are based on the bonus declared by Insurance company yearly. In this case insurance agents usually considers the highest bonus rate paid for particular product or else they will change bonus rate in their software and show you the manipulated returns. One more case may be , they considers the average rate too. But no one can predict the future bonus rates. Because bonus rates depend on insurance company’s profitability. Hence whenever you see the presentation, it is better to check what bonus rate your insurance agent considered to arrive at % of returns. You may find bonus rates by visiting individual insurance company web sites.

2) Taxability-This type of presentation is rampant. They will show you the tax benefit you will get by investing in the plan proposed by agent. For example, suppose actual premium payment is Rs.75,000 per year, they will calculate the tax exemption benefit you will get by paying this premium. If you are under 30% tax bracket then they will show in their presentation the paid premium as Rs.52,500. So automatically returns will show high eventhough bonus rates are very low. But as per current law, suppose you are paying premium of Rs.10,000 yearly then Sum Assured must be Rs.1,00,000 to avail the benefits of exemption. If your premium is more than 10% of Sum Assured then entire maturity will be taxable as per the prevailing tax rate for you.

They are eager to show you the tax benefits what you will get but they will not show you the taxability on maturity. Reasons they may say are, we can’t predict the future tax rules or on maturity your income+life insurance maturity may fall under exempted limit. But in my view when you are not considering the future taxation issue then why so eager to consider the tax benefit of today?

3) NAV for ULIPs-During presentation about ULIP product, your agent may show you the performance of fund which is the product of the same insurance company but different plan. Hence need careful attention and ask your agent how he arrived at the % of return he showed to you.

So think and deciding before believing the rosy returns shown by your agents.

 

 

8 Comments

  1. By telling the same logic, i had lost many client. Not only LIC Agent all Insurance company Agents do the same thing to sell policy.

    When i told the client that 5 yr term policy would not save any tax but returns would also be taxable, client said NO.
    But the same client took policy from some other agent when he told Tax benefit is there in 5 year plan.
    Client is also nowadays not ready to understand the logic behind Taxation.
    If you say the real thing, they assume you don’t know any thing.

    I am a LIC Agent. I have always tired to give the correct information and for the same reason lost many customers also.

    Reply
    • Shivakumar-I appreciate your views. But do remember that currently time being you face some such hurdles. But in long run you will run and survive in this business than those who always look for short term profit.

      Reply
  2. This is a fantastic site which empowers investors. Kudos to you for this great job. I have purchased an endowdement policy of rural postal life insurance. Can u please highlight/reveiw on this. Thanks in advance

    Reply
    • Srinivas-Postal Insurance provides decent returns of around 8% (I think so as premium payment is less and bonus is high). But I am not sure about those as I am not tracking them.

      Reply
  3. how many cfp s in india. for working for people u think ur a only cfp without investing only living with advisory.

    Reply
    • Hariprasad-Thanks for your comment 🙂 It is not the CFP tag that made me to write these posts. But it is the duty of every planner to make aware client about such bad practices. This is what I am doing. I am not thinking about other CFPs or agents who are practicing such things or not. Also if you have any wrong findings from my posts then let me know the same. I have never told that all agents are following such bad practices. But few are following it. As a planner it is my duty to make aware people about such bad practices.

      Reply
  4. Very analytical, educative. I differ your presumption of 10% I.T.rebate if SA is not more than 10 times of premium. Pls check your source and clarify. Many won’t come under tax bracket. Very embarassing, but true, that we should deduct the REBATE that we get while investing. (Many so called Civilised, educated, employed, high-fi people ask for such Rebate) Really these comments make many educative and keep them away from INSURANCE. (let their dependents left to GOD, keeping in view these REAL comments). Goodluck to the UN-INSURED.

    Reply
    • Vijay-What i told is, your premium should be 10% of your SA. It does not mean that you will get only 10% of SA. You will get the whole premium upto Rs.1,00,000 under 80C but if premium is more than 10% of SA then maturity proceeds are taxable. You should deduct the rebate but what I am pointing to say is few agents shows it as a real return from the investment instead of beneficial returns after tax consideration.

      It is not the initiative to say stay away from Insurance but making investor awareness from how they may get fooled by few agents. Regarding your wishes to UN-INSURED-Insurance is product someone must need to protect their life or contents. But Life Insurance products are designed in such a way that basic concept of insurance itself forgotten. Let me know your view.

      Reply

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