End To Ambiguous Insurance Policies In India

The Insurance Regulatory and Development Authority (IRDA) have come up with a new initiative for policyholders

. They have planned to ban beguile products to assure that policy buyers are not treated dishonestly. After the introduction of privatization in the insurance sector, the insurance industry is slowly seeing a growth. However, they still need to come up with new rules that will help the consumers get their best and do not get influenced by the products that only promise good return on the documents.

Insurance companies are hit by the depreciation in sales after new rules controlling the Unit Linked Insurance Policies. Hence, they are working towards many policies that on close observation could be considered misleading. One such thing is the promise of highest NAV (Net Asset Value). However, the calculation behind NAV is never publicized. You are also charged with additional fees in relation with 25 to 75 basis points. The basis point is 0.01 percentage point.

The whole issue with NAV is that policyholder is not aware of which highest NAV are the insurers talking about. Usually, they think of Sensex. AEGON Religare, ICICI Prudential, Bajaj Allianz, SBI Life and Birla Sun Life are a few insurance companies in India that sell their insurance policies promising the highest Net Asset Value. You will get 10 years tenure on these policies with 5-7 years of limited premium paying term.

It is believed that the products which give highest NAV guarantee are pure equity service and also pay highest return during the period of the tenure. However, this is not always the case. Suppose if your 100 investment gains by a certain value, then the section of the corpus is moved to debt. This means that when there are gains, some portion of it is moved to fixed income securities.

In some way, this could be a trick or strategy where investors do not get the highest NAV they would have received if they invested in equity. In a matter of concern to avoid liabilities for the respective company, the portfolio manager could actually beat down returns for the investors.

Another region, where investors lose out is commission to agents, which could also be plugged.

Commissions paid to agents are as high as 40% of premium on traditional products while 7-12% on ULIPs. However, once your policy gets into action, the agent loses his interest in serving the respective policy holder. So, to give proper and perfect service to policy holders, the commission could be paid at the later stages as opposed to the early years.

by: Chris L

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