India: Three misleading life insurance marketing communications
Here’s a compilation of the top three most misleading insurance marketing communications that are doing the round these days. As they say in Life Insurance parlance – “Caveat Emptor” or “Let the Buyer Beware!”
By Aniruddha Bose
Despite the critical role they play in our lives by allowing us to transfer insurable risks to them, Life Insurance companies in India have long been notorious for promoting their offerings in ways that are opaque, to say the least. This is evidenced by the fact that only around 30% of all policies go on to persist beyond their fifth year in our country – a number that is worrying for all stakeholders in the industry. Here’s a compilation of the top three most misleading insurance marketing communications that are doing the round these days. As they say in Life Insurance parlance – “Caveat Emptor” or “Let the Buyer Beware!”
“Get a Pension of 30,000 per month and Get Rs. 60 Lacs for your family by investing Rs. 3,000 per month and save tax”
Misleading because: it leaves out critical details such as the time horizon of the investment, and whether this ‘pension’ will be immediate or deferred. This SMS appears to ostensibly be promoting a unit linked pension plan, which will allow a commutation of Rs. 60 Lacs at the end of the accumulation period. To achieve a pension of Rs. 30,000 per month (or Rs. 3.6 Lakhs per annum), one would need to annuitize around 60-70 Lakhs of accumulated pension, going by current rate being offered by most insurers. Even if you were to earn a CAGR of 12% on your monthly savings of Rs. 3,000 for a 30-year time frame, the final fund value would amount to roughly Rs. 1 Crore. Considering that you’re only allowed to commute 1/3rd of the fund value at maturity (tax free), where’s the 60 Lakh lump sum value coming from? The numbers just don’t add up.
“Invest 160,000/p.a for 12 years and Get 1 Cr Tax Free Maturity and Life Cover 35 lakh to 1 Cr from ABC Insurance Company”
Misleading Because: this SMS misleads one to believe that one can ‘invest’ Rs 1.6 Lakhs a year in a life insurance policy for 12 years (just Rs. 19.2 Lakhs out of pocket) and receive a maturity amount of Rs. 1 Cr – tax free. This works out to a monumental internal rate of return of 23.86% per annum! Considering that traditional life insurance policies front end most of their commission pay outs, and invest the bulk of their funds into G-Secs, earning such a return would be impossible. What’s more likely, is that the maturity value of Rs. 1 Crore is payable after around 35 years. This works out to a more believable 6% IRR – and makes the product highly avoidable, to say the very least.
“Get a Rs. 1 Crore term cover for just Rs. 4,265 per annum”
Misleading because: if you scroll to the squiggly fine print at the bottom of the advert, it’ll most likely say “for a 24-year-old, fit, non-smoker male without pre-existing illnesses and with a family history of perfect health”. Most likely, your own premium for a Rs. 1 Crore term coverage will range from Rs. 8,000 per annum to Rs. 15,000 per annum – 2X to 3X the premium being pitched in this communication. If you’re receiving a 1 Crore death benefit for anything lesser, you may want to quickly scan through the claim settlement ratio of the insurer offering the policy. Anything less than 90%, and your ‘cheaper’ policy isn’t really worth it. Think about is: what good is it to leave a window of 10% or more open to the possibility of no pay outs being made to your family at a time when the worst possible misfortune has just struck them?