In a recent inauguration ceremony of an insurance brand, finance minister had appealed insurers to come up with simple products and refrain from mis-selling.
In a recent inauguration ceremony of an insurance brand, finance minister had appealed insurers to come up with simple products and refrain from mis-selling. In his opinion, the reason behind poor growth in insurance sector over last few years has mainly been complex product structures and unrestrained mis-selling.
Ever since Insurance Regulatory and Development Authority (IRDA) issued guidelines governing Unit Linked Insurance Plans (ULIPs) in July 2010; insurance brokers and agents have been pushing hard the traditional plans. Traditional plan were not regulated so far.
However, to make traditional plans more transparent and attractive to investors, IRDA has recently issued guidelines for traditional life insurance products .
By issuing new rules, the regulator has endeavoured to put an upper limit on,
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Moreover, IRDA has directed insurance companies to explicitly mention the expected rate of return in the policy documents.
In our view, the new guidelines is a welcome move which will curb mis-selling to an extent but still the commissions are high enough for someone who wants to mis-sell. Besides, insurance companies with less than 10 years of business history can still offer commissions as per the existing structure to individual agents. This makes the provisions weaker as many insurance players are yet to complete 10 years of their business operations. New guidelines appear unattractive for those who want to hold traditional plans till maturity. This is for the fact that, apart from moderate cost reductions, new rules have little to offer to boost returns of policyholders. Traditional plans are still not as transparent as ULIPs. We think while buying insurance you need to look at indemnifying risk to life. From the cost-benefit point of view term plan is the best option.
PersonalFN is a Mumbai based Financial Planning and Mutual Fund Research Firm
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