Life Insurance – Protection or Profiteering?

Off Late I have been looking to a Life Insurance Policy for myself. I suddenly had a realisation that I am under Insured going by the Market Standards of Insurance Coverage, so I looked to take an insurance policy.

The first hurdle I faced was the numerous policies available in the market, most of which are not PURE INSURANCE Policies. To add to it, most agents and even insurance company officials seemed to be interested in selling more of high premium policies rather than traditional PURE TERM Policies, which offer high cover for low premium.

Further the current craze in the market is the ULIP (Unit Linked Insurance Policy). I am amazed at the marketing strategies of the Insurance Companies and the High-handedness of the Regulator IRDA regarding ULIPs.

The concept of Insurance is to secure oneself/dependents from Risk. ULIPs involve investing in Equity Markets. Equity Markets have high risk factor which can even erode the asset base.  How both (Insurance & Equties) go hand-in-hand is a BIG QUESTION that the regulator needs to answer.

Most ULIP policies have Sum Assured based on the investment value. It is more like investment that insurance. The financial risk mitigation cover offered is more from my own money rather than the Insurance Company’s as is the case in a normal Insurance Policy. This being the case, why do I need insurance policy? I can invest my hard-earned money in other better instruments that offer higher flexibility or returns.

How Insurance companies are allowed to have investment products? Most Insurance companies seem to be actively promoting only ULIP based products due to the high income it generates for them – High operating margin & Lower Risk Exposure. (A list of Insurance Products by Life Insurance Companies on IRDA website clearly shows the ULIPs are more prevalent than Term Policies, there are companies which DO NOT offer TERM Insurances!)

Agents sell most policies to customers as investments – enticing customer by asking them to pay for just 3years and promising untold returns & risk cover and not disclosing the charges involved.  Companies do not even bother to cross-verify if the customers have understood the risk element in ULIPs and whether customers have the premium paying capability (esp. in case of high premium and low coverage policies where the risk for company is almost nil). Most application forms & the policy documents are in ENGLISH and companies do not bother to verify if the policy holder understands the T&C written in ENGLISH. No confirmation is made before issue of policy – however if the companies finds the risk cover being asked for is high, it insists on medical checkup and other formalities before issue of policy and even rejects policy if it is decremental to the company.
Ironically most customers are not aware of even the 15Day Free-look Period wherein the policy can be returned and premium needs to be refunded.

IRDA has been a silent spectator to the gross mis-selling of so-called protection policies which are nothing but HIGH- COST investment options.

Another question arises given today’s scenario where a lot of Private enterprises are entering the Insurance Sector – What happen’s if the Life Insurance Company, where I have a policy, goes bankrupt? – An email sent to IRDA one week back for this has met with NO response so far. May be they have not thought about it.
This question comes to my mind because most of the companies recently opening office have partners that are in no-way related to Life Insurance.