Open Letter to Chairman, IRDA: Benefit ... - Personal Finance

Shri Hari Narayan J,

Chairman,

Insurance Regulatory and Development Authority,

Hyderabad.

Dear Sir,

Re: Misleading Nature of Benefit Illustrations

We thank you for your intervention of reducing the premium allocation charges in ULIPs resulting in reduction of their sale. According to your data the sale of ULIPs have reduced from 75.3% of total sales in 2007-08 to just 15.4% in 2011-12.

However, in total effect, the mis-selling continues by sale of non ULIPs. Let me explain.

Vide your circular dated January 1, 2008 you had prescribed two benefit illustrations @ 6% AND 10% for linked products, i.e., ULIPs.

Now tele-callers are using IRDA's name to calculate a benefit illustration where the return is 10%. And they are using it for "Non Linked Products". Some more ambitious telecallers promise a return of 13-14%. Add the tax benefits, both for premium payment and maturity payments, the product becomes irresistible.

We are given to understand that Non ULIPs pay out more commissions to the Agents than the ULIPs.

We also understand that the Non ULIPs pay out bonus and that comes from the yield on the investments made by the Insurers.

Further, the yield of Insurers is in the range of 5-6% given the regulation of investing most of their money in safe non risky products that gives low but safe returns.

After making room for the Insurer's administrative and other costs, we presume that the returns offered as bonus cannot exceed 4-5%.

We have made some assumptions and we would like to know if we are wrong anywhere.

Further, vide your circular dt. April 27, 2010, you have asked all Life Insurers to disclose the commission/brokerage payable to an agent/broker explicitly in the benefit illustration declaration from enhanced transparency view point. We don't see this being implemented in the benefit illustrations by Insurers on their website.

RupeeManager Team

PS: We could not find an appropriate email id to send this feedback We have sent it to?complaints@irda.gov.in

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Source: http://personalfinance201.com/Life-Insurance/open-letter-to-chairman-irda-benefit-illustration-misuse.html

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