When equity markets are volatile the LIC policy sellers – who sell products with 40% commissions are on the prowl. They offer ENDOWMENT PLANS and PENSION PLANS with ASSURED returns. In fact they are more active when the markets are in a downswing…it is easy to do scare mongering to sell.

I hate scaring people to sell, but I guess that is the ONLY way to sell life insurance – and sadly what is used to sell ENDOWMENT plans. Even worse of course is using celebrities to sell financial products. I am a Rahul Dravid fan and he has a great following in this country…but I still do not like him endorsing financial products. Amitabh Bachhan, Hema Malini, Shah Rukh Khan (I am yet to see him in a sanitary pad ad), Hrithik Roshan, Sachin (remember Home Trade)….all of them have sold some financial product or the other. Sorry I am digressing.

So when the markets are down these guys come and tell you that we have given 7.89% in the past and will continue to do so. Now imagine a product with 40% first year commission. Then 5% commission for the rest of the premium paying term..how is it going to give you 7.89% return after taking away a 2% management fee? Is it some kind of a hedge fund? But this nonsense sells…and has been selling for a very long time. Now these guys will scare you about equities. Great. Ask him / her a simple question:

Show me the instruments that give you 9.89% return with ZERO RISK. Obviously such a product does not exist. So using past performance to sell financial products is another big fraud on the common man. Sadly the IRDA allows something called ‘policy illustration’ which is another legally allowed fraud.

What do I not like about these products?

• very long surrender periods..till you pay the premium for 8-9 years surrender is very expensive
• high fees and commission. As a salesman it is easy to like these products. So decide if you are a salesman or an end user.
• difficult to understand annuity structures, you need to be an actuary and an underwriter to understand the structure

Any upside in these products have to come from the equity markets. So what are they trying to tell you? I have no clue.

Now let us come to the villain of the piece, the Unit Linked Plans (endowment / pension plans)

• totally dependent on the market, so market volatility does not help except while MIS-SELLING.
• still a product with very inefficient tax structure
• possible to stop but withdrawing very very expensive because of the tax structure.

Take a day off. Plan your finances (omg no, you do not need any help). Do It Yourself. You will do a better job than many planners that I meet. The best are sure worth it. Some of the guys not at the top can s…w your happiness.