Mis-selling is not just about selling bad products to the consumers. It is also about selling good products the wrong way. In a way, selling any product that is not suitable for the consumer/investor is tantamount is mis-selling.
Selling a life insurance plan to an 80-year old who walked into the branch to open up a fixed deposit is mis-selling. Selling regular premium ULIPs (multi-year policy)with the impression that the premium needs to be paid just once is mis-selling.
By the way, mis-selling is not just limited to insurance sales. It is a widespread phenomenon in the financial services industry. For instance, selling equity mutual funds with the impression of guaranteed 25-30% p.a. returns over the long term is mis-selling. Selling even the best performing equity fund to an investor who can’t digest volatility or has limited risk taking ability is mis-selling. Asking investors to rely on SWP or dividends from equity funds for regular income is mis-selling.
Recently, I had reviewed LIC JeevanShanti, a new annuity plan from LIC. LIC Jeevan Shanti is a fine product. I have always maintained that annuity products can add value to certain portfolios. Therefore, LIC Jeevan Shanti can deliver value for many investors.
LIC Jeevan Shanti comes in both immediate annuity and deferred annuity variants. Under immediate annuity variants, the pension/annuity starts right away. Under deferred annuity variants, the pension starts at the end of the deferral period. For more on LIC Jeevan Shanti, refer to this post. Deferred annuity plans can have merit in some cases. By purchasing a deferred annuity plan, you can lock-in annuity rate (interest) far into the future, which is a big positive.
Where is the potential mis-selling in LIC Jeevan Shanti?
A fellow RIA forwarded promotional material used for selling LIC Shanti. While I can’t say for sure if this material is actually being used for sales, I did come across a Money Life article which mentioned that this illustration is actually being used by the agents.
Clearly, something is not right.
For instance, let’s look at one of the examples given. A 50-year-old will get Rs 192,300 per annum on investing Rs 10 lacs with a deferment period of 20 years. RATE mentioned is 19.23%.
Yes, you get Rs 192,300 per annum on an investment of Rs 10 lacs. However, you start getting this money only after 20 years. It is utter nonsense to call this a RATE of 19.23%. There is little regard for time value of money.
To put things into perspective, let’s consider an alternative investment.
You invest Rs 10 lacs for 20 years in a bank fixed deposit. Let’s assume you earn a return of 6% (post-tax) on your investment. In 20 years, Rs 10 lacs will grow to Rs 32.07 lacs.
For Rs 32.07 lacs to generate an annual income of Rs 192,300, you need a return of only 5.99% p.a.
You can see, in order to generate an income of Rs 192,300 per annum after 20 years from an investment of Rs 10 lacs, I did not have to consider anything above 6%p.a. In that sense, 19.23% is clearly misleading.
I can’t say for sure if this is a case of mis-selling. If the salespeople are providing the right commentary and explaining how it really works (and that the RATE means nothing), I think we are still fine. I am sure many agents explain the workings to the investors. However, the illustration seeds some doubts. If the focus is on the RATE, then we have a problem. As an investor, you need to be aware of such aspects before you sign up for the plan.
Assess the utility of an immediate annuity or a deferred annuity plan for your finances. If you see the utility, go ahead and purchase LIC Jeevan Shanti. LIC Jeevan Shanti is a fine product. Just that don’t get misled by the fancy RATE in the illustrations.
22 thoughts on “LIC Jeevan Shanti: A case of mis-selling?”
Pls do write about sbilife smart wealth builder and other such ulips. Misselling them at sbi branches is rampant.
Deeper question should be why should banks be involved in cross selling MF insurance etc?
SBI Wealth builder is a ULIP policy. Please refer to this post on how to select a ULIP for you. https://www.personalfinanceplan.in/select-best-ulip/
Hmmm, it is an idea worth considering. There is a serious competence issue as I see. Sales targets also promote mis-selling. However, the banks have the reach. Hence, the regulators may not like a blanket ban. Better redressal systems and punitive penalties can correct many things. Unfortunately, the regulators are not very serious about this.
HDFC Life too offers deferred annuity called Pension Guaranteed Plan with a maximum deferment period of ten years and return of purchase price. Is it any better than LIC’s Jeevan Shanti?.
With annuity plans, simply compare the annuity rate. Go with the company that offers a higher rate.
Hi Deepesh,
As per your calculation, Rs.10 Lac invested in FD grows to 33 Lacs at 6% post tax returns in 20 years. And from there a 6% return on it matches with the pension being paid by this plan.
So why is Jeevan Shanti a fine product?
The 6% return assumed for 20 years is very conservative (IMO) because a PPF will likely offer 7-8% tax free which will give a bigger corpus to earn interest from.
I wont bring in interest rate risk here because then there is a risk of us dying in the next 20 years before LIC starts paying.
I believe annuity plans are very costly and it won’t change for many more years to come.
Hi Pradeep,
It is not only about the rate of return. You also have to look at the purpose it serves.
Annuities cover longevity risk.
Though I can think of many cases, I will try to explain my point with one.
Annuity rates increase with age. So an investor at the age of 50 will get a lower than the person at the age 70.
Suppose there is a 70 year old who does not plan to leave legacy. He simply wants the highest and the safest income from his money.
He goes for an immediate Annuity without return of purchase price. The annuity rate is 11.49%.
So, he gets 111,490 per annum on an investment of Rs 10 lacs. No investment will give such high guaranteed return.
The caveat is that he does not get his money back. Fair enough but he has no plans to leave legacy.
Annuity products are not good for everyone. However, there are investors who will do well to have annuities in their portfolio.
sir
your all posts are one sided , please keep in mind that while giving example give practical examples , you had given example of person having age 50 , you had not studied plan well , the person who is investing , himself know from which year he wants returns , one in hundred will take a period of 20 years deferred period.
this plan can be given to a person along with his son or grandson also , if 50 years person takes a plan of 5 years deferrment then he as well as his son will get returns for whole life with assured rate of interest.
we had seen rate of interest of 10 plus in our past , but the future generation say after 15 to 20 years will see rate of interest about 2-3 percent , so a income started after 5 years and continues to sons life with around 9.5 percent is a great.
in life to go things smoothly at least 50-70 percent of your investment must be in assured returns.
you cannt rely only on SIP for all your future needs.
for variable returns like share market or mutual fund whenever you see your desired returns , it must be come to your pocket , otherwise you will see only on paper and when it really needs , your pocket will be empty with flat returns.
Oh man there is one thing assured with LIC. They use our money to buy a sinking bank like IDBI bank and take over 30% of their bad loans. What’s the business strategy for an insurance company buying a bank?
No one understand that.
Tomm they will buy Air India to give free trips to it’s agents.
As a result of all these, the returns we get is 4-5%. Meanwhile there is nothing assured about inflation or interest rates in the future.
But it’s much better to not fund LIC to help them buy banks and airlines.
Hi Pradeep,
That is a mess with LIC.
you people are really Duffer who don’t know the reality and any other duffer can easily make you pe.ople fool. Get an expert to advise from Professional LIC Agent you will be shocked that Jeevan Shanti is the best investment for your retirement with Guaranteed returns lifelong.
Hi Ajay,
Thanks for your feedback. You have some valid points.
Btw, I didn’t say I dislike LIC Jeevan Shanti.
It is a fine product. In fact, it is one of the few products from LIC that I like.
However, it is not for everyone (just like equity mutual funds may not be right for everyone).
The problem that I highlight is that of mis-selling or customers being given the wrong impression before purchase.
Hello Deepesh – Do you have your expert review on LIC Jeevan Pragati? I couldn’t find it this site. Can you send the link to the article (if already published)?
Hi Harish,
It is like any other participating traditional insurance plan.
The only difference is that the sum assured increases every five years.
If you have not purchased yet, don’t purchase.
Some of the very few blogs which actually make sense.
Unfortunately most articles on other websites are almost like paid articles.
Thanks a lot.
Please comment in few words, if you are busy , if hdfc life sanchay plus (long term income)is a decent product to buy for someone
1. Major need is long term assured income esp since it will be tax free
2. What is IRR for this policy please
Hello Sir,
My age is 58 years, now I have taken Jeevan Shanti policy (Rs 5. 0 Lakhs) with one year deferment.
what is the amount receivable by my family at the end.
Please clarify.
The pension amount will depend on the variant chosen.
Please check with your agent.
you are showing your expertise then why are you not able to reply to customer queries. Why are you misguiding people?
Jeevan Shanti is the best product of this century, which gives guaranteed returns lifelong, and there is no product in market to beat it.
That’s why people like you are spreading negative info
Hi Raghunandan/Prateek/Abhinandan,
You are right. I do not know everything about the plan. I have written my opinion about the plan (infact this is about sales, not the plan)
You may not agree with me. That’s completely fine. We can have a difference of opinion. You can share feedback. It makes for a good discussion.
However, using offensive language or calling names (as you have done in some of the other comments with different names) is not appropriate for the professional you aspire to be.
I understand you are associated with the sales of LIC Jeevan Shanti. And I can understand your displeasure.
Btw, I like LIC Jeevan Shanti and have written a favourable review of the product in another post. This post was about how LIC Jeevan Shanti is being sold in the wrong manner. Even good products can be mis-sold.
Have also written about when to buy annuity plans in various posts. Invite you to visit those posts and share feedback. I will also learn from you.
Hi Raghunandan,
If a person(age 40 yrs) invest Rs 10 lacs in LIC jeevan shanti with deferment period 10 years, he can get a Rs 105200 pa as a pension after 10 years lifelong. Alternativley if he invest in post office products like KVP, his investment is doubled in 10 yrs (ie) he can get 20 lacs in 124 months itself.
To get the fair returns (ie) double his investment in LIC jeevan shanti, he will get after 10 yrs approx (by getting a return of 105200 for 10 yrs approx). That is only at the end of 2oth year, after such a long time he will get the returns equivalent to KVP. Then how the LIC jeevan shanti is really a good product????
How is it better than Post office pension plans, don’t they give better returns with the same security.
Hello Sir, is it safe to invest with LIC looking at the money being used to fund debt ridden banks and don’t know what more in the future? I am 52 years and would like to invest with 8 years deferment period in order to get pension starting at the age of 60 years. I am concerned with the SAFETY of my money till i live and then return of purchase price to my family after me. Kindly enlighten on this point.
For now, I wouldn’t worry about the safety of my money with LIC.