Can you really trust your LIC agent?

You may trust the state-run Life Insurance Corporation of India with your life, but can you trust all its agents with your money? According to industry regulator, Insurance Regulatory and Development Authority, no.

In a press release, 'Misleading Sales Literature on Unit Linked Product', issued on March 2, 2007, Irda says development officers and agents of the country's largest life insurer are promoting Money Plus, the company's fast selling unit-linked plan, "claiming to offer astronomical returns and guaranteed benefits at the end of specific periods". Irda has trashed these claims. The regulator has also said: "Returns under unit-linked products are dependent on the performance of the chosen fund, which is in turn affected by the performance of the stockmarkets."

"Some of the leaflets assure maturity value of Rs 3.38 crore (Rs 33.8 million) at the end of 20 years on an annual investment of Rs 100,000 over three years, projecting a growth of 25 per cent per annum," Irda has said. Not surprisingly, the plan has been a runaway hit. Says an agent, "Not so financially literate people, such as electricians, taxi drivers and other small wage earners, are seen investing in it."

Shafiq, 51, who lives in Kathgodam, near Nainital, is a taxi driver. He had been investing in bank recurring deposits. He has invested Rs 20,000 in Money Plus. "I was told I would get Rs 16 lakh (Rs 1.6 million) after 20 years," he says. "Bank deposits would have given me around Rs 300,000. I can expect at least Rs 500,000 from this," he said after he came to know what the score was.

LIC's product brochure for Money Plus, however, gives no guarantee of returns. The guidelines of the Life Insurance Council requires insurers to project their returns at rates of 6-10 per cent, and also to state that even these are not guaranteed. But the printed leaflets are a different story. It gives no indication of who circulated it. But it does show, in a complicated sort of way, how the money would get multiplied. Irda has taken cognisance of this and taken up the matter with LIC and urged the public not to believe such presentations.

Ulips have been on a selling spree since they came to India. They have seen numerous cases of mis-selling and even Irda took notice of it and changed the rules of the game in April 2006. However, the product is such that it can be easily mis-sold. Around this time last year, LIC hit the jackpot with its Future Plus. In fact, LIC has been raising big funds towards the end of almost every financial year. The reward for the sales force: 14 per cent of the first-year's premium.

The premium allocation charge for the first three years on anything between Rs 5,000 and Rs 75,000 is 26.5 per cent and five per cent a year in the next two years.

An agent's way of working is determined by a code of conduct set by Irda. But it is the moral obligation of the insurer to maintain the ethics and spirit of business across its workforce. A mis-selling of this magnitude should not be ignored at any cost. It is the insurer's own reputation that is at stake as the bubble is sure to burst, even if 20 years later. For today, maybe the regulator should recall the product.