Last week I was talking to two CXOs of life insurance companies. They had similar problems – but not really the same one. One CXO was still opening branches for selling life insurance – this kind of surprised me. As he was on the sales side, he was saying that the ‘training’ is too long. In fact he wanted the training to be reduced. I guess he would have been happy with a ppt of say 45 slides, so that the training about new products, etc. could be done in 2 hours time. The EX-HEAD of training was telling me that 2 of his superiors hated him for saying ‘training should be done for 1 week’.

The best thing is both his bosses tell me once in a while how committed they are to training. Why they need to impress ME – is something that I have not been able to fathom for the past decade. Needless to say, I have not done any training with this company. This company excels in mis-selling, wrong selling, etc. but just could not care. Deep pockets really make you relaxed, does it not.

If I were the only shareholder, I would have shut it down.

The second company’s CXO was saying that the lapsation was not so much a problem as surrenders. Surrender means people look at what product they have bought, do not like it, and say ‘just give us our money back’.

Most life insurance companies assumed that many policies will be surrendered, but still the majority will be held up to maturity. However when after 4-5 years, they find that the ‘investment’ (as it was sold to them) has a lousy performance.

If they are wondering why there are so many surrenders, I am wondering about their wondering!!

It was sold to them as a 3 year product. Is it surprising that they are surrendering? It was sold as an investment product. It was sold by agents who had no choice but to become an agent. It was sold by employees who knew that by the time the 3 years were over, they would not be around. It was supervised by seniors who said

“Subra, I know it is wrong, but what to do…everybody is doing it” – most of them are today CXOs.

Is it surprising that there are so many surrenders? No. Not to me.

Are they really surprised? No. I think it is for public consumption. They continue to get their salaries, they make ppts on how to reduce surrenders, meet in Hyatt, Trident or Leela.

Then go home. Tomorrow is another day.

Sharholders, unit holders ki vaat lagi!

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  1. I frankly feel that surrenders should be more if only people knew how to calculate what their policies were earning net. Many cannot do the calculation of IRR or XIRR and hence do not know the true health of their “investment”. I strongly feel MF and ULIP statements should provide XIRR in their regular account statements.

  2. I have a product called SAP from Hdfc Standard Life and I pay Rs. 3L a year as a premium. I have paid for 4 years..and I have one in my wife’s name too – she pays Rs. 3L a year too.

    Should I continue paying for 10 years or should I surrender it please?

  3. How well said by Sreekant…

    I wonder why MF statements cannot have XIRR as one of the items… perhaps, they fear saying the truth?

    Sukumaran, calculate the XIRR of your investment. If it is below 8% then its better to surrender.

  4. @ Sukumaran

    ULIPs unfortunately have the expenses front loaded and you may need to continue for some more time for those expenses to make sense. Quite likely, your policy would still be in the red (current value would be lesser than the total premium paid by you) after 4 premiums and XIRR of 8% as mentioned by Anand is quite unlikely. There may be no Yes or NO answer to your question and you may need to decide based on many factors like policy terms, performance, your insurance needs etc.

  5. My husband got sold a ULIP by a very close friend, working with a insurance company – “3 saal premium bharna hai, bas. baad mein 15 saal cover rahega”. surrendered it in month 2 itself. Dost dost na raha. So much misselling. I am my insurance agents nightmare. Surrendered my endowment policies, took term, refuse to take endowment policies. Dont understand the funda of taking an endowment policy on my kids lives to provide for their education. What would I do with their education corpus if, god forbid, they died !!!!

  6. Will do a post on surrender again…but in Sep.

    SG the question to answer is who will pay the premium on those policies if you die!

    The word ‘life insurance’ is not understood. It is actually a ‘cash flow insurance, if the breadwinner is not around’…change to this, and there CAN BE NO MIS-SELLING…but the regulator..well waiting for a regulator scam to hit 🙂

  7. Whats worrying is very few people understand. I and most of my friends work in financial services industry. But I still have friends who prepay a 8% fixed interest home loan and also reduce tenure by increasing EMIs. I am told that I am the one who said it is foolish to pay off a 8% fixed interest home loan. I would give an arm and a leg for that! FDs, PPF and endowment plans are safe investments – safe if you consider return of principal, but very unsafe if you look it in terms of future value. Even suggested that they could put the lumpsum amount in a FD or post office scheme and invest the monthly interest in a SIP. No luck. They would rather look at a insurance policy which gives a bonus of 50/- every year. And this from people who work in the capital markets!!!!

    Term insurance gives no returns, i am told. I ask them if they are unhappy that they did not claim anything from their motor insurance every year “yaar ek baar bhi gaadi ka acident nahin hua is saal. Pura motor insurance bekaar gaya” then why look at life insurance like that. Your vehicle is more important that your life?

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