IRDA’s short sighted approach helps insurance agents mis-sell…

I would today like to talk about a flaw and a loophole which is existent in the IRDA regulatory framework. The IRDA attempts to protect the investors and purchasers of insurance products, for which it has placed specific limits on the rate of return shown in illustrations used in client presentations.

Just to protect the investors from over claimed returns expectations in the ULIP products, there is a provision that all illustrations should show return expectations of 6 percent and 10 per cent only. Although, this serves the purpose of keeping the returns expectations for ULIP plans under limits, but as this same regulation is used in the traditional policies’ illustrations- therefore, it by showing 10% return in a traditional policy overstates the returns attainable by any debt product consistently over the products tenure.


As normally people think that traditional endowment plans are able to give the guaranteed returns, a high return estimate of 10 % can be highly misleading and can spoil the financial planning of investors over his/her life span.

I would like to urge to IRDA to change this regulation and keep lower limits than 10% for illustrations of traditional plans and propose that the illustrations be made with two returns percent scenarios of 5% and 8%.

This will reduce the extent of miss-selling prevalent in high numbers as insurance agents sell traditional policies as guaranteed products with return percentage of 10% p.a. for periods over 30 years which is not at all guaranteed.