On one side Mr. Swarup says financial products should become cheaper. He also says that the customer should pay for the advisor’s services. This is a great move the person who is getting the services can choose how much to pay.

However the IRDA has one funny (weird) condition in its armory. There is something called a ‘top up’ – which is a fantastic feature to reduce the total cost of the policy that I acquire. It is difficult to understand without a numeric example.

Let us say I take a life insurance policy for Rs. 200,000 p.a. premium and take a sum assured of Rs. 40,00,000. The Income tax Act says the premium should not exceed Rs. 800,000 if you want the product to be tax free. Fair enough.

However, the IRDA (with the noble intention of not making this look like an investment product) has capped the plan’s top up to Rs. 50,000 (far below the Income tax limits).

Let us look at a ulip plan with Rs. 2 L premium. Suppose this plan was taken in 2004. I would have paid premia for Rs. 2 lakhs X 2L = Rs. 12 lakhs. This would be worth say Rs. 15 lakhs after deducting all charges.

However if I had topped up (say Rs. 3 lakhs every year) the plan would be worth Rs. 15L + 25L (assuming the 18L top up would have grown to 25L) = Rs. 40 lakhs!

How come? Simply because out of the top up amount very few charges get deducted AND it also reduces the sum at risk for the Life insurance company. Here is a great opportunity to reduce the risk for the life insurance company, helps the customer reduce the risk charges, and is happily within the income tax law. However there is a big block between this and the common man…LOL

However the comment of a big man in the life insurance industry was nice – “IRDA is meant to protect somebody – so sometimes it protects jobs in the industry, sometimes it protects agents, sometimes it protects the shareholder / promoter of the life insurance companies…and some times even the bloody policy holder…”  Nice, I liked it.