Payback time for some insurance cos

Today I read an article in the Indian Express that new businesses of the life insurance companies grew 22% to Rs 55,355 crore in the first eight months of the current fiscal. However, the private insurance companies has lost business by 6%. ICICI Prudential is leading the losers pack with 28% decline in premium collection. Another major player Bajaj Allianz has declined by 11%.

Guess its payback time for some. Selling all those policies 'loaded' in favor of the agent and the insurance cos has to catch up with them some time.

I have one first hand experience of these policies. My wife was sold one such ULIP 3 years ago. It was called Bajaj Allianz Capital Unit Gain. My father-in-law was explained that this was the best possible plan that he could buy at that time. Best possible plan of course, but not for his daughter, but his insurance advisor. This is one of those actuarial funded products which IRDA ordered Bajal Allianz to withdraw by the end of August 2007. (see Here). My wife paid the first premium of this policy with a cheque dated 14th Sept 2007, the policy commenced from 20th of Sept. So much for a product which is supposed to offer protection.

The charges for the produce are fantascic. It has an allocation charge of 5% throughout the policy term! Policy administration charges of Rs 600 pa increasing by 5% pa compounded annually. Surrender charges are extremely high, so that you lose almost all your money if you want surrender the policy even after paying premium for several years. Fund management charges vary from 0.95% to 1.75%.

The beauty is the 'Initial management charge'. Though called 'initial', it is applicable for 20 years. So for 20 years it will deduct 5% of the the fund corpus at each monthly due date. I have seldom come across such a product that wrings out profits for the agent and the company from the common investor. Bajaj Allianz can be sure that I will never even consider that company for any of my life insurance needs. And she is only one of those hundreds who has been sold that policy. So, most of those families will also never touch any Bajaj Allianz product with a pole.

I also find that Bajaj Allianz advertises most of its products as tax saving products. The insurance component is rarely stressed. their products are to be bought in an tax emergency, that is in hurry when y0u are supposed to sign on the dotted line without going through all the fine print.

Caveat Emptor.