THIS product can give you fantastic returns, Sir. The earlier version of this plan had given a 32 per cent return. It is a fantastic investment option, even though it is an insurance policy”, an insurance agent was telling Ravi when I came in. The agent was just leaving. He had left behind some colourful brochures.
Ravi turned to me and asked skeptically, “Are such high returns possible from this ULIP?”
“Everything is possible in certain timeframes. What you need to have asked is, in which period it gave that return and what was the return of the benchmark in that period. That would have given you an indication of whether this fund has performed well or not.” I continued. “You also need to look at the charges. The charges are supposed to have come down. But the charges in the first few years are still high. In one of the plans, the premium allocation charges for the first three years are respectively, 30 per cent, 15 per cent and 10 per cent”.
Ravi was amazed, “But, I understand that the difference in gross and net yields should be no more than 3 per cent for policies of term 10 years or less and 2.25 per cent for policy term over 10 years. I thought it will be low due to this regulation”. I was able to understand the confusion. “That will apply over the tenure of the policy, not year on year”, I said.
“There are other charges as well, if you want to know. Policy Administration Charges is another head, you would want to look at carefully. In the same policy, the Policy Administration Charges are 0.4 per cent per month, for the entire tenure ie, 4.8 per cent per annum, throughout the policy term”, ventured I.
“That high? “, gasped Ravi. Today was his day of surprises. “Yes. It is. And there are products where it is higher. Policy Administration Charges would be charged as a percentage of the premium, which penalizes those who pay higher premiums. ”, I said.
“So, what has come down then?” Ravi wanted to know. I did not have a readymade answer to this. “ Fund Management Charges have come down a bit. Very high charge products (Premium Allocation Charges in some were as high as 70 per cent) have been weeded out. There are still charges which may not even come under the purview of the new regime. For instance, any cost associated with investment guarantee is excluded from the calculation of net yield. So, guaranteed NAV products have an element of cost that is open to creative use. Also, if you were to surrender after 5 years, most of the front loaded charges would have been paid and yet the regulation restricting the difference between gross yield and net yield, does not apply. Hence, it will be a big handicap for those who want to surrender early.” I concluded. Ravi was absorbing all this intently. I now moved away to get my cup of tea.
Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content
Courtesy-Moneycontrol.com
Tuesday, June 1, 2010
The games that insurance agents play-Beware of an Agent
THIS is the third call I’m getting today from an insurance company”, Shashank fretted to his friend Sudhir. Sudhir looked up from his work and just said, ”What’s new? I got four calls today, myself”.
Not surprising. For many it is a new calling (pun unintended). Insurance has become the refuge of many a mutual fund distributor, as that business has folded up since August 2009. The insurance agents have quite a few tricks up their sleeve. Not everyone is bad and uses these unsavory tricks. But, you better know them. Here they are:
1) Old wine in a new bottle
The agent is constantly on the lookout for business. If organic growth becomes a problem, existing patrons come in handy! That is when you get calls to surrender the three year old ULIP (unit linked insurance plan) to put it in, what else but another ULIP or ULIP based pension plan. Only that the insurance product charges are front loaded and you would have just completed paying most of the charges in the first product and now you could start off with the second one.
2) Government guarantee!
This is a ploy used by LIC (Life Insurance Corporation) agents. They keep talking about sovereign guarantee. Guarantee in a traditional product is only for the sum assured. Every insurance company (including private players) guarantees the payout of the sum assured. It is only the bonus payout that is not guaranteed. For ULIPs, this anyway does not apply. So, this is a total con game.
3) New products that no one has heard of
Heard of Jeevan Amrit or Jeevan Sadhana? These are not LIC plans. They are plans conjured-up by putting together a few insurance products of LIC . Also, interestingly, the payouts which come in at various points are assumed to be invested in National Savings Certificate, Public Provident Fund, RBI Bonds etc. Then they calculate the returns and tell you that their Jeeven Amrit or Sadhana gives 8 -10%. Don’t be misled by this. The higher returns are because of these other products, not insurance. I have still not understood why they should show reinvestment in other products, when they are talking about insurance. And, how someone falls for these.
4) 6 & 10% returns in a traditional product
Recently, I found that a client of mine has gone for Jeeven Saral, a traditional policy of LIC. However, the agent had given an illustration with 6% & 10% returns! This was to be used for ULIP policies, where this is a possibility. In traditional policies, 10% return is virtually impossible. You would readily understand, why they use it then.
Must read: Beat your bank deposits with endowment policies
5) Insurance on the child
There are products for the benefit of the child, where the child is the insured. It’s absurd, as the child is a dependant and insurance on the child is of no practical use. Yet, these kind of products are sold and are bought by emotionally charged parents, ending up with a bloomer.
Sudhir clutched his head when he came to know of these. He just bought a child insurance on his daughter and he remembers buying a Jeevan Aradhana or some such product, which is one of those 'intelligently' packaged ones.
For those buying financial products, a basic level of financial literacy would help. Studying and doing some basic research, is a good idea too. If one is not sure, get an unbiased opinion from someone who knows about insurance. Else, it becomes a costly mistake, which lingers around for years.
Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Courtesy-Moneycontrol.com
Not surprising. For many it is a new calling (pun unintended). Insurance has become the refuge of many a mutual fund distributor, as that business has folded up since August 2009. The insurance agents have quite a few tricks up their sleeve. Not everyone is bad and uses these unsavory tricks. But, you better know them. Here they are:
1) Old wine in a new bottle
The agent is constantly on the lookout for business. If organic growth becomes a problem, existing patrons come in handy! That is when you get calls to surrender the three year old ULIP (unit linked insurance plan) to put it in, what else but another ULIP or ULIP based pension plan. Only that the insurance product charges are front loaded and you would have just completed paying most of the charges in the first product and now you could start off with the second one.
2) Government guarantee!
This is a ploy used by LIC (Life Insurance Corporation) agents. They keep talking about sovereign guarantee. Guarantee in a traditional product is only for the sum assured. Every insurance company (including private players) guarantees the payout of the sum assured. It is only the bonus payout that is not guaranteed. For ULIPs, this anyway does not apply. So, this is a total con game.
3) New products that no one has heard of
Heard of Jeevan Amrit or Jeevan Sadhana? These are not LIC plans. They are plans conjured-up by putting together a few insurance products of LIC . Also, interestingly, the payouts which come in at various points are assumed to be invested in National Savings Certificate, Public Provident Fund, RBI Bonds etc. Then they calculate the returns and tell you that their Jeeven Amrit or Sadhana gives 8 -10%. Don’t be misled by this. The higher returns are because of these other products, not insurance. I have still not understood why they should show reinvestment in other products, when they are talking about insurance. And, how someone falls for these.
4) 6 & 10% returns in a traditional product
Recently, I found that a client of mine has gone for Jeeven Saral, a traditional policy of LIC. However, the agent had given an illustration with 6% & 10% returns! This was to be used for ULIP policies, where this is a possibility. In traditional policies, 10% return is virtually impossible. You would readily understand, why they use it then.
Must read: Beat your bank deposits with endowment policies
5) Insurance on the child
There are products for the benefit of the child, where the child is the insured. It’s absurd, as the child is a dependant and insurance on the child is of no practical use. Yet, these kind of products are sold and are bought by emotionally charged parents, ending up with a bloomer.
Sudhir clutched his head when he came to know of these. He just bought a child insurance on his daughter and he remembers buying a Jeevan Aradhana or some such product, which is one of those 'intelligently' packaged ones.
For those buying financial products, a basic level of financial literacy would help. Studying and doing some basic research, is a good idea too. If one is not sure, get an unbiased opinion from someone who knows about insurance. Else, it becomes a costly mistake, which lingers around for years.
Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Courtesy-Moneycontrol.com
Market Insight-Religare
Nifty larger degree trend likely to turn negative
Nifty (4970↓116): As seen from the appended chart Nifty reacted exactly from the 50% retracement level of its previous rise. The pull back following the completion of an “Expanding Triangle” pattern formation was expected to be weak.
Whether, yesterday’s sharp down ward move would be able to sustain the crucial 4786 the support level so far its larger degree trend is concerned.
Nifty broad support level is placed at 4897-4786, it failure to sustain the support or its move below 4786 would turn the larger degree trend to be negative.
On the contrary, Nifty if able to maintain 4897-4786 then the trend would remain in a broader range for next few weeks, the support for the range would be at 4897-4786 and resistance at 5100.
As the Nifty trend is having a negative bias, avoid fresh long position, fresh long position should be initiated only above 5100 levels, until then remain cautious.
SAIL
Strategy Sell Previous Closing Price Rs.198 Target Price Rs.191 Stop loss Rs.202.60
Tata Motors
Strategy Sell Previous Closing Price Rs.721 Target Price RS.705 Stop loss Rs.732
Lupin Strategy Buy Previous Closing Price Rs.1853 Target Price Rs.1900 Stop loss Rs.1820
Nifty (4970↓116): As seen from the appended chart Nifty reacted exactly from the 50% retracement level of its previous rise. The pull back following the completion of an “Expanding Triangle” pattern formation was expected to be weak.
Whether, yesterday’s sharp down ward move would be able to sustain the crucial 4786 the support level so far its larger degree trend is concerned.
Nifty broad support level is placed at 4897-4786, it failure to sustain the support or its move below 4786 would turn the larger degree trend to be negative.
On the contrary, Nifty if able to maintain 4897-4786 then the trend would remain in a broader range for next few weeks, the support for the range would be at 4897-4786 and resistance at 5100.
As the Nifty trend is having a negative bias, avoid fresh long position, fresh long position should be initiated only above 5100 levels, until then remain cautious.
SAIL
Strategy Sell Previous Closing Price Rs.198 Target Price Rs.191 Stop loss Rs.202.60
Tata Motors
Strategy Sell Previous Closing Price Rs.721 Target Price RS.705 Stop loss Rs.732
Lupin Strategy Buy Previous Closing Price Rs.1853 Target Price Rs.1900 Stop loss Rs.1820
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