We are a consumer organization and we receive consumer complaints through our portal https://consumer.org.in. In the recent past we have seen some interesting activity which a common Indian needs to understand.
This is related to Insurance business. Our Govt. Of India allowed private operators to compete with our long standing and most successful Insurance sector the LIC of India and the General Insurance of India. Unlike other sectors, MNC’s jumped for this and very soon they found this to be a loosing proposition. So they thought of some schemes where they could earn an extra dime. They came with a fantasy and come out with the Unit linked Insurance scheme. Unit linked because of 2
reasons. First they are not permitted to enter into the financial instruments directly. Secondly this will be a a source of income both for financial trading and insurance. So far so
good.
But the question is that why should a financial instrument be linked with Insurance and how come the Government has given permission. It is evident of links with the higher authorities. The government machinery should be clear that the financial sector should not be mixed with Insurance sector. should be kept separate and should function separately.
As the scheme is explained by the seller to the purchaser by pep talks, it appears to be very good, but when you read the fine print then you come to know that it has draconian effect.
the worst part is the first year allocation charges of the premium you pay to the company. In most of the cases if the fine print is studied carefully then you come to know that 20 - 25% and in some cases / schemes, 30% of the investment you pay for the first year is allocated
by the company for its expenses. That means that only 70-75% of your investment is invested for the returns. Is it not draconian loss to the investor. I have been asking the companies to give the logic for 25-30% appropriation to expenses account. They say that the major funds go to the Investment managers. That means that the managers handling the investment portfolio take away around 20%.
This is their net income. Now when they suggest investment, any returns that come or not is your luck. they have already earned 20% of your investment to their kitty. When we feel the other way round. The investment managers should say that what ever profit we arrange for you, we will charge 20%. This sounds good as to earn their profit they will have to make genuine efforts. So beware and check for the antecedents of the company and managers. Better is to go for other sources of investment which give the same returns and safer returns. Now when you invest 20 to 25%
your net loss, and if you land up earning 8% return on your 75% investment amount you will take 5 years to brake-even you investment amount. So where is the question of any gains? These are the point’s one need to think before the act.