Recently, I came across what can be best defined as an "innovation in the mis-selling of Life Insurance". An Advisor in my team approached me, vexed, saying that a client of hers has decided to stop his monthly SIP's in Mutual Funds, and instead channelize his monthly savings into a newly launched LIC plan known as "Retire and Fun" - a plan that not only provides a death benefit of nearly Rs. 2 Crore, but also assures an annualized return of 10 per cent. Having spent a good decade debunking the myth that Life Insurance makes for good investments, my ears pricked up. Obviously, the lamentable name assigned to this purportedly "magic bullet investment cum insurance" aroused my suspicions further.
A quick Google search confirmed the fact that LIC had, in fact, not launched any plan by this name recently (not to my surprise). Sure enough, a colourful but rather tackily put together brochure surfaced. The brochure contained, besides a plethora of reasons to "invest" into the plan, a few tables illustrating the policy returns and death benefits associated with "Retire and Fun". What's more, the image of the handsome elderly couple that graced the brochure was a copy/paste job from the official brochure of Birla Sun Life Insurance's "Vision Life Income Plan".
It didn't take too long to discover, much to my amusement, the following fine print disclaimers tucked away discreetly on the third page:
1. "Retire & Fun is combination of LIC plans specially designed to provide Tax Free, High Returns and High Risk cover after Retirement. It's not an LIC Plan"
2. "The Maturity is calculated as per bonuses last declared by LIC"
3. "The above Statements are based on certain assumptions, which are liable to change according to Government / Corporation's Policies"
What an innovative way to misguide clients, I thought to myself! A single traditional plan has the potential to completely derail even smart investors, what with the unusual opacity of their features and benefits. In this case, the agent had deviously represented the combined features of benefits of three, maybe four different policies, all in one sheet - to "structure" a quasi-product called "Retire and Fun". Further exacerbating the issue was the fact the nowhere in the document were the names of the constituent plans (presumably, an endowment plan, a term plan and an annuity plan?) mentioned. No doubt, the confusing explanation of this plan would be followed up with the swift signing of documents for all the constituent policies, without as much explaining to the client what these actually are!
Secondly, the calculations themselves were made "as per the bonuses last declared by LIC", which, by the way, is a completely illegal practice. The IRDAI norms for benefit illustrations for traditional plans leave no grey areas: they require the clear representation of two scenarios: at a 4% interest and an 8% interest respectively. In fact, there's a good chance that the "last declared bonuses" by LIC may not sustain in the near future, considering that they invest largely into fixed income securities, which have started yielding much lower returns compared to the previous three years.
The third disclaimer takes the cake! What exactly are these "certain assumptions" that are subject to change at the snap of a finger by the Government or the Corporation? We'll never really know.
What next? A quick excel sheet calculation revealed that the "plan" actually provided annualized returns ranging between 5.43 per cent and 6.23 per cent per annum (not 10 per cent), depending upon what stage the client chose to encash one of the constituent plans and receive the surrender value. The returns are non-guaranteed to boot; after all, they are based on "certain assumptions" and are "liable to change according to Government/Corporation's Policies". The client quickly understood that he was one step away from falling into a giant, 30-year, investment black-hole that would provide poor returns while providing what could be termed as a "decent" level of life coverage. These returns were obviously a far cry from the 12% plus annualised returns that the client had been earning from his Mutual Fund SIP's for the past seven years. We advised the client to go online and purchase LIC's online term plan in case he required a higher death benefit. The goal linked SIP's continued to run. The client hiked his death benefit by Rs 2 Crore. All's well that ends well!
End Note for Policy buyers: Traditional plans make for poor long term investments. They are structurally incapable of delivering great returns, because they are mandated to invest the lion's share of their corpuses into G-Secs. The heavy, front-loaded commission structures associated with such Life Insurance policies further negate their scope for creating wealth for you. Be watchful of agents such as the one in question, who could be looking to confuse you further through the innovative mis-selling tactic of clubbing different policies together and lumping them into one tacky sounding product. Ask for the details of the constituent plans and for a proper, IRDAI approved benefit illustration for each of them. "Let the buyer beware!"
_20241003152432_original_image_28.webp)
 (1)_20241002162318_original_image_43.webp)