This is a classic BFSI problem. They like to do one thing – manage funds. Managing funds is far more profitable than sell risk products – though at some level risk management and risk peddling make tons of money. So there is a product called life insurance which has to be peddled. Make no mistake, it is very profitable to do so. However, when you pay salaries in millions of Rupees and bonuses and esops you need funds to manage because it is the self sustaining and auto growing business. Also the fund management business is about costs, and keeping it low – so if you have to make a lot of money, you need a lot of STICKY money that does not get withdrawn.
Now in a scenario where people turn to blogs for ‘correct’ information, how does one do that? Well, it is not so simple, but it is a great thing to do. Create a product which the bloggers love to flaunt and recommend. The mutual fund industry created a product called “Monthly Income Plan” – believe me I have met Relationship Managers and IFA who have no clue that MIP is just a hybrid fund and it has NOTHING TO DO WITH CREATING A monthly cash flow for you without touching your capital. So suddenly an RM is recommending a MIP to a retired person who thinks that the MIP will create a monthly cash flow WITH the capital intact. Far from it. What is the regulator doing about this? Obviously they are too busy with far more important things. Nomenclature? Oh they have no time. You ask them and they say “Insurance is worse” – that is true. Did you know that the Hdfc life insurance ULIPs started at a face value of Rs. 20 while others started at FV of Rs. 10? at least the MF regulator does not let this happen (I mean I hope).
For the life insurance industry there is a magic product called ‘Term Insurance’. This is a product that is very popular and many bloggers, including yours truly recommend this wholesome product. I have done many blog posts on term insurance, because the life insurance industry (was the word obfuscation made for insurance companies or was it for all regulators?) has managed to create an amazing confusion with this word.
So how do you create variants of Term insurance which make the product profitable? It is like creating a base level car at Rs. 8L and its top end version at Rs.13L. Obviously it is the add ons dummy. So you have subtle variations of term insurance – riders, return of premium,…etc. which makes it difficult to really cost a product, and even worse, KILLS the essence of a term insurance. For example (http://www.subramoney.com/2017/01/buy-only-term-insurance/).
Then they created another product saying ‘we will pay you the amount in monthly installments. Great idea right? Imagine a woman who loses her husband at the age of 40 and has no clue how to manage a lump sum. Suppose her husband had taken a term insurance plan which pays her the policy proceeds in installment. Say he had a term insurance which paid in installment and he had a Rs. 2 crore term insurance, and the company pays her Rs.2L a month for 20 years. Wow sounds good, right?
Well it is the same old BFSI trick. Use the ‘risk’ of a bait and get your teeth into fund management – keep the Rs. 2crores for 20 years and charge a management fee. Brilliant is it not? Basic purpose served – fund management through a risk cover !!
Financial journalists of course LOVE THIS product. It gives the client the ‘choice’ and so it is good they say. Shit. It is a LOUSY product – you are stuck to the same company for 20 years with no porting possibilities.
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