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IRDA and RBI sleep even as people get swindled, conned and cheated

Despite repeated assurances by RBI and IRDA, mis-selling by banks, agents and insurance cos. is pretty rampant. To make a quick buck for themselves, banks and insurers not only resort to selective communication, but also don't shy from telling blatant lies. 

I wish to warn you against many misleading ads and promises being presently splashed across all media channels. The idea is to trap unsuspecting aam aadmi to buy insurance policies before the Mar 31st deadline to save tax.

In one such advt. about its Capital Protection Policy, the company proclaims that 
i.   it will give you high equity market returns
ii.  but if the market falls, it will at least give back your capital 
iii. and, of course, you get life insurance cover too.

This, in one simple word, is... IMPOSSIBLE. 

You can get either 
(a) high equity market returns but with risk of loss if the markets crash or 
(b) capital protection but with very paltry single-digit returns 
— and NEVER both high returns and zero risk of loss.

For a minute let us assume they are right. If that be so, why would anyone invest directly in the stock market and risk losing money? Rather everyone would simply buy this insurance plan and live a happy life. There will be zero risk of losing money and yet possibilities of making stunning returns if the markets do well. But the fact that lakhs of people are investing thousands of crores in equity everyday, proves that the claims of the insurance company are absolutely false.

There is another simple and straightforward logic to this.

Suppose the company raises Rs.4000 crores as premium and invests in equities. At the time when the policies mature, the markets are down 25%. This, you would agree, is quite possible! Which means that the insurance company has lost Rs.1000 crores of your money and will get back only Rs.3000 crores. So what happens now? As per its promise, the insurance company has to refund Rs.4000 crores. It will have to make up for this shortfall of Rs.1000 crores from its own pocket.

Do you really believe that anyone will take such a big and needless risk? Definitely NO.
Do you believe that IRDA will approve such a scheme? Definitely NO.

So will the insurance companies default in making the payment if the corpus turns negative?
Again NO.

The catch is that your returns will rarely touch the double-digit mark. So, please, please, please warn your friends, colleagues and relatives against these unscrupulous insurance companies, their agents and the bankers, who sell such lousy schemes without the least concern about your hard-earned money. The matter is extremely URGENT as intense hard-selling is on, due to the last minute rush by people to save tax.

As regards the trick involved, I had explained it some time back in my blogs 'Capital Protection Schemes are nothing but psychological traps' : Part 1 and Part 2

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