Banks as Insurance Brokers in India-Stay away !!!

Two days back I received a mail from my client requesting for my view on the insurance product offered by her banker. There was so much hype created by banking guys about the product as if this product is ONLY available to this lady as she is their proffered customer 🙂

Banks

So let us first understand what are the positive points shared with her regarding this particular product.

1) Plain Vanilla product-Once Bank Manger offered this product to my client, she said before proceeding to buy she must consult  her financial planner (me). After this they started to claim that this is Plain Vanilla product. So no need to contact any planner to discuss and review. Because this is simple a MONEY BACK PLAN!!!

Yes, the plan offered to my client was typical traditional money back insurance plan of “Canara HSBC Oriental Bank of Commerce Life Insurance Smart Stage Money Back Plan“. This is a typical Money Back plan with term being 15 years. You will receive survival benefit 15% will be payable at 4th,8th and 12th year. Rest 55% will be payable at maturity along with bonus. If death occurs during the term of policy then his/her nominee will receive SA+Bonus (irrespective of survival benefit already paid).

So what is there to give a second thought on this as one will receive GUARANTEED MONEY BACK benefit at 4th,8th,12th (15% of SA) and GUARANTEED MATURITY BENEFIT of 55% of SA??? Along with these GUARANTEED maturity benefit she will also be eligible for bonus. So what an interesting product is it !!!

2) No Admin Charges-One more wonderful feature of this product is, they are offering it to customers without any ADMIN CHARGES !!! This is worst kind of example to sell traditional plans stating that product not involves any admin charges. In ULIPs we know what are charges involved. But in typical traditional products we will not come to know what are the exact charges and there is no bonding from insurance companies to disclose it. Hence simply this bank promoted this product stating “NO ADMIN CHARGES”. But in reality these plans involves more charges than typical current versions of ULIPs. Hence they are more dangerous than ULIPs !!! Because they involves around 25% of agent’s commission in first year, some managers commission, investment cost of such accumulated amount, policy admin charges and so on…. So how can we believe that there is no admin charge??

3) Only for Bank Customers-This is a typical wordings they use to sell or lure their esteemed customers 🙂 If you go by the plan features of this product, there is no such restriction. But they claimed so only with intention of selling product !!!

4) Money Back is FREE FROM TAX– Yes whatever the return from life insurance policies will be tax free if it follows the current taxation rules of life insurance products. But my only question is this TAX SAVING AT WHAT COST?? Lower insurance with low return. Also this is not a single product which is tax free in India. They why to sacrifice your life insurance need and return on investment??

5) Best for kid’s future– Actually the above said my client have 2 year old baby girl. So they know about her family history and her concern about her kid’s future. Hence they pitched product stating to be one of the best kid’s plan as she will receive the cash at regular intervals. But sadly they forget that current education cost is more than 10% while this product will give around 6% return !!!

What we can learn from above experience?

  • They know your financial conditions. So they easily target to sell the products.
  • Relationship Manager who is selling is just a bank employee. He is not an expert in the product knowledge he is selling.
  • Today they may sell you by tall claims. But in future no guarantee that you will meet him again in same bank or in same position.
  • Always understand YOUR NEED rather than the NEED OF OTHERS.
  • Visit bank for banking service but not for other services they offer you.

Currently Banks are acting as corporate agents representing one life insurance company, one general insurance company and one standalone health insurer. But recent move by Finance Ministry or RBI to promote banks as brokers will actually be a disaster for customers. Because once banks promoted as brokers then they are free to offer all insurance companies products under their umbrella. This actually promote them to be more selling centric. Also few bank officials may offer to buy the insurance products to give some unofficial favors. Hence it is always advisable to follow the points what I raised above and maintain a distance with your bankers if they promote any insurance product. 

16 Comments

  1. last year i went in icici bank and they sail me the term plan. also they were forcing me to invest in some mutual fund. not only that the scheme was with some maturity period or for 5 year. i didn’t understand that but they have deduct the mab charges from my account. i ask him to revers my amount then i will invest.

    Reply
  2. I need a home loan of 30 lakhs and i apply for it in one of the nationalized bank, but my bank manager pressurised me to take lic policy of 30 thosands premium per annum. I dont need this product where tocomplain

    Reply
  3. Nice Article. Now a days i am regularly visiting your blog to read some good stuff.

    Even my banker is offering me to invest in SIPs through them and they are not even charging any thing for the same.

    Reply
    • Shreyas-Thanks for your kind words 🙂 But they earn the upfront and trail commission directly from mutual funds which is adjusted in NAV of fund for you. So you feel that it is free. But in reality nothing is free if they are offering you product with big smile.

      Reply
  4. Sir,
    first of all let me thank you for the article, I am there in the Insurance Industry for almost a decade now, and I have seen some typical mentality of any common man which I want to put a Light on –
    * when we (I being a commoner, too) approach any Organization for any of our NEEDs, we tend to Believe blindly, especially if that org happens to be a Reputed one, we do never Double-check, in fact we do not check at all.
    * whenever someone approaches us, we become Skeptic, why me? What lies beneath? That means the Salesman must be in trouble, so let me Bid. After all I deserve the Best (?).
    * the Salesman also takes an easy way out, sells Products which benefits more to them, not to The Investors. And there comes the Popular Term, “Mis selling”.
    * this “I want More” mentality makes the Representative as well as the Investor demean the Sector.
    * we believe that a SALESMAN sells BAD (if not Worst) Products. They are there to make a Fool of us (that means our local stationary shops are not Retailers, they are Manufacturers, and we do never Question their authenticity).
    and many more……………
    Instead, we (both the Representative and the Investor) need to be clear about the difference between “NEED” & “WANT”. Lets not play the Blame Game.

    Reply
  5. thank you, for information, next time i will go, i willgo to bank for banking services,..
    but sir my bank is also providing LIC insurance services.
    i min yesterday when i went to bank to deposit some cash and then he helped me for other related work like pass book printing, a monthly statement etc etc, on one table,,, after some time he ask me to investment in LIC. he has all the forms, plan charts and other papers of LIC.
    sir my questions is that we can go for to bye policy offered bye bank or we call to the authorized agents to get policy of LIC.

    i am asking after taking policy. bank will get high commission or any agent will get higher commission.

    Reply
    • Virendra-Whether you buy through banks or insurance agent, nothing will change to you or to commission you earn. But before that understand whether that product is actual in need or not.

      Reply
  6. Hello,

    Thanks for the article 🙂

    How you arrived at 6% return??? Can you throw some light how to caluculate

    Thanks in advance!!!!

    Reply
    • Chandra-They are typical traditional insurance products. Expenses will be high and investment will be in debt funds or based on some Govt policies. So how can you expect more than 6% return? You can check my claim with current bonus trends.

      Reply
  7. Dear Sir,

    Nice article on a very relevent topic of mis-selling of insurance products by banks.
    Sometime back last year RBI deputy governor Dr. Chakrabarthy had said that banks should not be selling third party products like insurance or wealth management services. But dont know what is preventing them from framing strict rules.
    Since mis-selling is rampant and the regulators turning a blind eye the best thing would be to get ouselves well educated about these products before buying.. Afterall “Insurance is a subject matter of solicitation”.. not misselling by banks.

    Reply
  8. Sir,

    Extremely super, when I was in hurry, my banker helped me to get done my banking related work and he then asked me to go for one product and also he said the same as above, but may be the product is different than what you given above.

    Thanks for this info….it may help many as banks are for only your banking services and not for your financial planning. I liked your words….

    Thanks
    Bharat L K

    Reply
    • Bharat-Thanks for sharing your experience too 🙂 Request you to spread this awareness among your known.

      Reply

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