Page 23 - Life Insurance Today December 2017

Avoid falling prey

to mis-selling of

Insurance

W ith mis-selling of insur- Regulations: provides tax deduction if one makes

ance, especially life insur-
certain investments or even expendi-
The sector regulator has some surpris-
ance, being rampant, the
ance policies. Here, the tax deduction
media is full of such oc- ing rules regarding continuation of a tures. One of these is buying life insur-
life insurance agency. Earlier, the In-
currences. Whenever there is a discus- or the tax relief is linked to the pre-
surance Regulatory and Development
sion on this problem in any forum, the mium paid and not the risk cover. It is
Authority of India (Irdai) regulations
usual tendency is to blame the seller. the experience of many seasoned fi-
made it mandatory for an agent to
While this is not entirely wrong, some nancial planners that a large number
generate insurance business of a cer-
part of the blame must surely be of insurance clients do not know the
tain number of policies in a year, as
shared by the rules and regulations amount of life insurance cover they
well as collect a certain minimum
that incentivise sellers to behave in have but they know exactly how much
amount of premium each year.
the manner they do. premium they pay each year.
Now, it is left to the insurance compa-
Accounting principles: nies to decide these cut-off levels. The Commission:
According to the accounting principles earlier guidelines were surprising, as The seller’s commission is also linked
followed by the sector, the premium there is no reason why the regulator to the premium and not the cover. The
collected by an insurer is booked as its should decide the amount of premium seller includes the sales staff of an in-
income, while the risk covered is the that an agent should collect to stay in surance company and not only the
firm’s liability. A sound business is one the business. Even if it was doing so, agents. The focus, at every stage, is on
that has high income and low liability. the parameter should have been risk the premium amount, not on the risk
What do you think the management cover, and not premium. This guide- cover. Not surprisingly, pure insurance
will attempt to do? Will it not sell poli- line has been changed and renewal policies tend to lose out to invest-
cies where the premium is high in criteria have been shifted to the com- ment-cum-insurance products in sales.
comparison to the insurance cover? A panies. What have they fixed as the
pure term plan is a policy that gives criterion — risk cover or premium Several changes need to be made to
the least income to the insurance collected? As explained in the previ- alter this state of affairs. It’s true that
company, while creating the highest ous section, since income is the main accounting principles cannot be
liability. Hence, it really does make criterion, insurers naturally go for the changed. While the regulator and the
good business sense for insurance premium option rather than risk cover. media have raised a hue and cry about
companies to sell investment-linked commissions, there is still a lot of
insurance policies, to shore up their Income Tax Act: room for further reforms on this front
income. Section 80C of the Income Tax Act within the sector.

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Life Insurance Today December 2017 23

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