The Trouble With Insurance Marketing SMSes

"Get 13.12 lakhs on maturity by investing just Rs. 2,850 per month and save tax under 80C. T&C apply. To know more, SMS XXX to XXXX" - so read a recent SMS marketing a Life Insurance product by a top insurer. Of course, there are multiple variants of this SMS floating around, finding their way into the inboxes of scores of guileless investors who lack the know-how to fully understand them.

Truth be told, insurance marketing practices are in dire need to regulation - for several reasons. First, a complex product like traditional life insurance cannot possibly be adequately described in 160 characters. Second, the vast majority of these SMSes actually misrepresent the Life Insurance product itself. Here are just a few ways in which such SMS campaigns represent a poor practice based on questionable ethical standards.

Misleading by drawing a contrast
Most Life Insurance marketing SMSes aim to sensationalise the 'returns' earned on the product by drawing a contrast between the savings amount and the final corpus. For instance, in the aforementioned example, the contrast between "2,800" and "13.12 lakhs" is psychologically compelling. Had the very same pitch been framed as "34,000 per annum" yielding a final corpus of 13.12 lakhs, the effect wouldn't be quite so magnetizing. Even worse, the SMS doesn't even bother to mention the time-frame involved, which brings us to our next point.

No mention of the time frame
The deliberate omission of the time-frame in question is a clever little trick to camouflage what would undoubtedly be an abysmal return from this so called "investment". Mentioning the time-frame would automatically result in calculations of the total out of pocket outlay versus the final corpus. For instance, 2,800 per month for a time period of 20 years actually works out to a fairly heft out of pocket outlay of 6.8 lakhs. The awareness of this number, which is an investor's right, certainly takes a fair degree of sheen off the product. After all, how alluring does "Get 13.12 lakhs on maturity by saving Rs. 34,000 per annum for 20 years" really sound? Incidentally, that would be a much more transparent representation of the product. Without the mention of a time frame, how is one to arrive at the CAGR (Compound Annualized Growth Rate) on offer from this product? Incidentally, if the plan in question is indeed a 20 year one (highly likely), the CAGR works out to a measly 5.86% per annum.

No mention of the death benefit
It's a pity that most Insurance Marketing Campaigns (not just SMS based ones) don't as much mention that there's a death benefit involved in the product. Even in the SMS in question, the word "investing" squarely stands out as the purported benefit of this plan. Nowhere is it evident that this is a campaign that promotes a product whose purpose is, essentially, to transfer the risk of "accidental poverty" for your family to an insurance provider.

Pitched as a tax saving product
We Indian's have a known fascination for all things tax-saving, and insurance companies use this to their full advantage - this fact is evidenced by the religious annual spike in premium collections in the JFM quarter of any financial year. Most Insurance Marketing SMSes like this one choose to position their plans as efficient tax saving instruments - when in reality, Life Insurance is a sub-optimal tax saving tool. The tax saving arising from insuring your life is at best, incidental to the core purpose of Life Insurance.

End Note: It's best to not get too excited by SMS campaigns promoting traditional insurance plans. In all likelihood, you'll discover after doing the math that you were being pawned a low return, high tenure savings product with poor liquidity and exit options and just a sliver of life cover attached. Most such plans will end up providing you just 4%-6% returns per annum. No wonder then, that such thought needs to go into packaging it's features to make them alluring enough to consider! Give them a skip.