Tata AIA Life refunds Rs2.5 lakh after Moneylife proved contradictory policy terms

After paying annual premium of Rs50,000 for five years, Mr Saxena’s policy was auto surrendered as the fund value was only Rs33,759. Intervention by Moneylife Foundation Insurance Helpline ensured that Tata AIA returned the full premium of five years. Find out how underwriting error was proved

Prakash Saxena (name changed), age 59 years was mis-sold Tata AIG (now called Tata AIA) InvestAssure Gold Whole life ULIP policy in March 2008 for investment purposes. Mr Saxena had paid five premiums with last payment in March 2012. The policy got auto-surrendered in May 2013 as the fund value was lesser than one year of premium of Rs50,000. Tata AIA letter dated 30 May 2013 states that there was non-receipt of premium towards due date of March 2013. Tata AIA sent cheque of Rs33,759 to Mr Saxena as a full and final settlement of all claims and demands under the policy.
 

Mr Saxena wrote to Moneylife Foundation Insurance Helpline as he had no clue what happened with his policy. He was even willing to pay premium to restart the policy, but the insurer had already mailed him the cheque after closing the policy. Moneylife Foundation Insurance Helpline found that something was inconsistent in the policy terms. The “Schedule of Benefits and Premiums” document clearly states “Number of years premium payable” is five and “Last premium due date” as 30 March 2012 and “Policy term” of 41 years. Mr Saxena had paid five premiums with last payment in March 2012. He did everything as was told by the policy to do. How did the fund value fall below the one premium amount mark? Was it the equity fund option that made the difference?

 

The answer was actually in the charges which ate over 80% of the annual premium payment. Old ULIPs (pre September 2010) had heavy front loaded charges. Moreover, the mortality charges are steep for older age and it differs with every insurance company. The product which was purchased for investment purposes of Rs50,000 per annum was actually giving insurance cover with only a small amount for investment purposes. It explains why the fund value was only Rs33,759 after five years.

 

But, did Tata AIA sell the right product to the customer or did they have policy terms that clearly benefitted them? Does Tata AIA benefit from not covering the policyholder who today is nearly 65 years for Rs15 lakh sum assured after enjoying the premium payment for five years? We can’t say. But, the policy terms had contradictions. If “Number of years premium payable” is five and “Last premium due date” is 30 March 2012, why was Tata AIA expecting the policyholder to pay sixth premium on 30 March 2013? If “Number of years premium payable” is five, then why is “Policy term” of 41 years knowing fully well that policy will auto surrender the moment the premium payment is stopped. This is due to the fact that over 80% of the premium payment was going towards the charges. There were clear underwriting errors.

 

Mr Saxena was under impression that he is buying a whole-life policy and Tata AIA knew that policy will be over after five years. Moneylife Foundation Insurance Helpline highlighted the discrepancies to the insurer. Tata AIA swiftly made a decision to refund the entire premium amount of Rs2.5 lakh to Mr Saxena and they have made the payment. It proves that if there is a genuine case that can be logically proved, the insurance company will have to make amends.
 

Moneylife has written to Insurance Regulatory and Development Authority (IRDA) stating that the case is not just of mis-selling, but flawed underwriting and hence a toxic product. We requested IRDA to find out from Tata AIA about how many such policies were fraudulently sold and auto-surrendered. Mr Saxena case should not be looked as one-off case, but IRDA help is needed to get justice to all the policyholders who had to suffer.  
 

Moneylife had written about how one senior citizen relied on the misleading benefit illustration of HDFC Life Young Star product that conveniently ignored the steep mortality charges, which made up for 80% of the premium. The insurance company benefited by keeping the customer in the dark about how much part of the premium really goes towards mortality charges. It is certainly an ingenious way for a life insurance company as they benefit with hefty mortality charges due to higher age of the insured as well as from the expensive Waiver of Premium (WoP) feature. After all the other charges of premium allocation and policy administration charges are deducted, what goes into investment is negligible and hence the corpus after seven years was dismal. HDFC Life child plan sold to senior citizen erodes 96% of investment amount!
 

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Comments
Mandira Nayak
9 years ago
Hello,

I am facing the exact issue with TATA AIG Life insurance.

I stopped paying my premium of 2lakh after three years ( min duration)and now since it 5years I called the customer care asking them for the market value of the invested amount so that I can withdraw it without any charges.

To my surprise,they informed me that my policy has lapsed now and infact out of 6lakhs they had sent me a cheque of 1 lakh 63 thousand. I informed them that I was never informed about this auto surrender and that I never received the cheque with all the details of the units.

My policy was started in 2008 and the last 3rd premium was paid by me in April'2010.

As per my knowledge IRDA passed the rule of the auto surrender charges to avoid this kind of sufferings of the customers in June 2010.

Can anyone please suggest if there is anyway I can try to get my money back from these TATA AIG frauds?

Regards,
Mandira Nayak
[email protected]
Rama Kant Singh
9 years ago
The Aadhaar enrolment and its URL system is very slow. The enrollment agencies are playing as Govt. Inspectors. Enrollments be exercised on home service system.
The nation has got only 17% Aadhaar, then how it takes as vital place? That is only a faul play with the nation.
TIHARwale
9 years ago
Good job done by Money Life
PREMNATH N KINI
9 years ago
Great Work by Moneylife Team keep it up. I know TATA AIA are very fast at lapsing policies as I had expirienced this a couple of years back. I had HAND DELIVERED a cheque for the halfyearly premium & had taken an acknowledgement from their Parel office. This cheque was not encashed & three months later I received a letter saying that the policy had lapsed due to non payment of premium.As all the documents were available with me I could fight this case out & have the policy revieved before the next premium became due.
raj
Replied to PREMNATH N KINI comment 9 years ago
Mr Kini, Write to Moneylife Foundation Insurance Helpline
nilesh prabhu
9 years ago
Great work, just wondering whether we should return back to old raj days. Should all policies bee pre approved by IRDA before been sold ?

raj
9 years ago
Thanks everyone for your support! Yes, IRDA should take it forward. I have written, spoken about it. If they only ask Tata AIA about number of auto surrendered policies and see if the policy terms led to it. Yes, benefit illustration should also reflect the impact of steep mortality charges.

How about simple declaration to the customer that 80% of your premium is going towards charges? It would have cleared everything and Whole life cover is not possible if premium payment term is only 5 years. The insurer took the risk for 5 years and policy was over.
Milind Chitnis
9 years ago

This is great work.

There seems to be major flaw in policy design.

For older clients the benifit illustration itself shold show that the premiums paid in say 5 years will not suffice to give cover for say 15 or 20 years.

Do check what the benifit illustration was showing in this case.

The very fact the company so "generously" and promptly settled the matter is suspicious.

This has to be considered as generaic case and as you have righlty said, ALL policies issued for this (and similiar) products should be checked.

PLEAE take this forward. This could be big.


anil gupta kumar
9 years ago
I am certain that TATA AIA has done the same with many clients. The authority IRDA must ask TATA AIA to furnish details of all such clients whom AUTO surrender cheques have been made out of Invest Assure Gold Whole life Policy. It is because of clauses that are written in tiny letters that fooling of clients is easy.

You have done a marvelous job and returning of 2.5 lacs clearly shows serious flaws.
Mandar Malpure
9 years ago
Well done Raj, keep it up
Dr Pankaj Gupta
9 years ago
kudos to the team , who helped the hapless...
DEEPAK KHEMANI
9 years ago
Great work Raj keep it up I'm sure there are other who do not even know about these terms and conditions and may have unknowingly accepted the payments at a steep loss.
What needs to be done is to find out which adviser MIS-SOLD this policy and what action is taken against them, as they are the ones who must have got fat commissions on a product which has such high charges
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