India: Insurance + Investment Financial Products
This article will give a high-level overview of the AMAZING financial product that exists ONLY in India: Insurance + Investment schemes.
Picture this:
Hypothetically, An agent approaches you with an investment scheme. Give me 1 Lakh per year for 5 years. & 25 years later. I will pay back 20L.
That is 4x of the investment amount!
Sounds great right?
Oh, & this scheme will be backed by some of the largest Indian companies (LIC, HDFC, ICICI, etc).
Throw in some Life insurance as well.
Throw in some tax benefits.
Oh & the agent is a trusted family advisor. Deep relations with your family.
I took a quick survey amongst my friends about this hypothetical scheme. They all seemed to agree that this is a good scheme! One even exclaimed, “If this product exists, I am willing to buy multiple such schemes & put a lot of my money on this.”
Seems like the perfect product right? Nothing couldn’t go wrong here. Duh!
Unfortunately. Everything is terribly wrong here. Before we look into why it went wrong. I will take a quote from the movie Prestige (it’s a movie on magicians a.k.a. frauds) here:
The magician takes the ordinary something and makes it do something extraordinary. Now you’re looking for the secret… but you wont find it, because of course you’re not really looking. You don’t really want to know. You want to be fooled!
You want to be fooled! You want to believe the magician's illusion!
It was the same thing with the agent’s scheme. A scheme designed to fool you!
That “amazing” scheme. The growth rate was a mere 5.26%!
Why on earth would you commit a large amount of money for such a long period of time for a paltry return?
Combine this with inflation. (Read Impact of inflation here). Historically, at 7% in India. You are basically losing money on this scheme.
Why does the agent recommend such a low-return product?
Commission
Here is the commission you pay to your intermediary & agents.
Look at the numbers! Nuts!
The first-year commission for your agent is 50–70% of the amount you pay!
Buying these policies leads to the TRANSFER OF WEALTH.
YOU get POORER. AGENTS get RICHER.
Don’t trust anyone earning a commission. They are incentivized to give bad advice. “Never ask a barber, if you need a haircut.” Barber’s reply will be an enthusiastic YES!
ALL salesmen are delusional or dishonest. Perhaps both.
Reader Challenge
After all this, perhaps you have some doubts. Some apprehensions. Sure. If you own such policies, try this:
- Read the document & figure out the cashflows. Open an excel sheet & Calculate IRRs for yourself. It’s quite easy. Benchmark this to historic FD rates.
- Insurance cover. Calculate the cost of equivalent term insurance using this website. Equivalent insurance likely costs ~1% of your premium. That’s how much the insurance is worth! Agent’s commission is worth more than the insurance!
Insurance plus investment schemes. Urghh!!
Your humble idiot author owns 2 such policies. My family has owned multiple such products in previous decades! Millions of Indians buy such products. All are pretty much crap. We got duped & continue to be delusional! The horror!
Random gyaan from a friend
A friend cracked a joke on me after I misused his code patch.
Yatri apne samaan ke zimedaar khud hai.
Meant as a joke on me. For my carelessness. For some reason, the line stayed with me.
Translation: You are responsible for your own crap. Whether that’s Money. Life. Health. Career. or anything else.
People will deceive you. Play tricks on you. Build an illusion. And then smack you! But the illusion will be so strong that you won’t even feel the smack!
“Bane: Theatricality and deception are powerful agents. To FOOL the uninitiated.”
Millions of people, including me, my family & friends have bought these stupid schemes. Who is responsible? Not the agent. Not the Company. Not the government. It’s us. The idiots who buy.
Confession
I have to confess here. The example I took. 5L for 5 years. 25 years later. 20L. The growth return I mentioned was 5.26%. I lied. The true growth rate is 6.49%.
You didn’t catch that, did you? You weren’t really looking, were you? You just wanted to be fooled. Unfortunately, that’s the recipe to get looted.
Further Proof
Insurance plus investment schemes are pretty much crap. This is a fact. NOT an opinion. But illusions are deeply embedded into our minds. It’s so deep that none of my friends believed me when I revealed the growth rate for my example. They were confident that I made a mistake! After all, these schemes are super popular. Surely, they can’t be crap?
Well. Yes, they are. I am obviously NOT the first person to say this. In the comments are various other posts explaining the same thing. Help yourself.
The resources explaining how crappy insurance plus investment schemes are endless! The question is. Are you really looking? Are you paying attention?
Get EDUCATED. Or get consistently LOOTED.
