Mis-Selling in Insurance industry with example

One of my client recently got an interesting message about offer to invest in insurance plan and he forward the same message to me. When I looked at it, it looks like amazing plan to me. I will share that message with you all, except the contact number they provided.



After receiving this message, I called to the number they provided in message and informed to the person that one of my client got this message and want more clarify on that plan. I provided my mail id to send the details as per his request. But after waiting for few more days too, I didnt get the mails.

So eager to know about the plan, i called once again the same number. To my amaze it looks totally a mis-selling activity which he is doing.

During my conversation with him, I come to know about the plan details as below.

1) It is traditional plan. He advised me not to go with ULIPs as risk is more šŸ™‚

2) I need to invest yearly Rs.25,000 for 5 yrs.

3) Bonus rate currently under this plan is 4%

4)Ā GuaranteedĀ Bonus rate as he told to me is 3%, which you will get with yearly bonus what I showed in (3).

5) After that he told, I will get SA of Rs.1,25,000.

5) When we both calculated over phone, accumulated bonus as per 4% per year is-Rs.5,000 yly+Ā Guaranteed Bonus at 3% is Rs.3,750. So overall you can expect bonus from this plan is-Rs.10,000 to the maximum.

6) So after five years, I will get Rs.1,25,000+50,000=1,75,000.

8) I asked him why he showed 40% return in message-He told “It is not 40% return, but I will get 40% more on what I invested” understood?? Suppose you invested Rs.1,25,000 for whole 5 years then 40% of this Rs.1,25,000 is Rs.50,000 more. So totally I will get Rs.1,75,000. So return on my investment is not 40%.

When we look at the above illustration actual return on your investment is 11% IRR reason is, exaggerated bonus rates which he told during conversation. So point to remember is-Beware about each word what your advisers explains before purchasing.

9) Then I asked about the 2 grm Gold Coin-He suddenly started to speak in high volume about the reason for that is-to grab the business. When i reminded about the breaking of IRDA rule (regarding sharing of commission), he became a bit soft and told about theĀ competitors who are eagerly ready to sell the product by sharing the commission (he named LIC agents mainly :)).

Finally I told him, dont behave like politicians who blame each other rather than being loyal to people.

So lesson investors can learn from this is, beware about exaggerated illustrations and ask 100 questions before investing in any product, do your own research and try to find the meaning of each new word your adviser bring forth to you.

My sincere request to my agents and advisers fraternity is-Dont show the exaggerated data to grab the business. Also dont follow the bad practice of sharing the commission. Because commission is value you are getting for the service you provided.

(Note-I retained the message which I got from my client for future reference)

6 Responses

  1. Sir Thanks for the quick reply
    What we call the amount received on maturity of a policy and amount received on death or accident ?

    1. Vinod-Amount received on maturity is called “Maturity Amount” and amount received on death is called “Death Claim Amount” normally.

  2. Dear Sir I am self Employed Professional and earning around 25000 per month and no insurance so far and no investments , Please guide some plans and Investments ?

    1. Vinod-Your first priority will be to cover your life risk by taking term plans. Then go for health, critical and accidental insurances. After fulfilling your insurance need, you can plan for your investment based on your financial goals. Like for short term-RD, FD, Debt Funds and for long term you can go for equity oriented investment with around 10% towards gold too.

  3. Dear Sir I want to know the difference in the amount I am getting from the Insurance Company on Death or Serious Injury and the second is I am getting the amount on maturity of the Policy ie no Casualty occurred ?
    Like what are they called in Insurance Industry :-


    1. Vinod-On death they will pay you the sum assured you opted and for critical illness or accidental insurances it depend on cases what you opted and based on that they will pay you. I am bit confused with your question, can you clarify once again what exactly you want to know?

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