Wednesday, January 20, 2010

Insurance fraud

I just realised that I have forgotten to pay my life insurance. I was going through some old files on the computer when I found a spreadsheet where I had noted a previous payment and realised that it was probably overdue.

I bought this policy long years ago in my careless youth. It combined medical (including hospital charges), life and had a lump sum payment at the end. The policy was that you pay for 15 years, enjoy the full benefits of the policy for 15 years, collect a lump sum at the end of the 15 years and then enjoy a free life cover (no medical) for a further 10 years.

They sold it rather well, you need to get it when you are very young, otherwise the premium keeps increasing, once you get married you need to consider your dependents, should something happen to you, you get a lump sum at the end in any case (guaranteed!) so its really a saving plus its tax deductible too.

I bought into the story and bought the biggest policy I could afford.

After the first year, the insurance salesman was back, telling me that I needed to enhance the policy-the costs of hospitalisation had gone up, my lifestyle would surely have improved therefore I would need more money at the end of the period etc etc. This time I resisted and although I paid the premium, left the policy as it was.

The following year it was the same story all over again, more enhancements or perhaps, another new policy? I resisted again but paid the premium on the existing policy.

They tried to fish once more I believe. I think they also reminded me to pay for a couple of years after that. After that they gave up on me. No further attempts to sell me anything else and no further reminders to pay.

The last few years it has been a case of almost forgetting to pay and by some accident remembering and ringing them up, getting the details and paying.

I was cursing them again yesterday, why cant they remind people to pay up, surely its to their advantage to collect? Then I realised that its not.

You see, if you fail to pay, the policy lapses. They have guaranteed a minimum payout at the end of the 15 years (and they promised even more). Further, the longer the policy runs, the greater the likelihood that I'll fall sick some day and claim on the medical.

Therefore, the best thing the insurer can do is collect a few years of premium and then hope the policyholder forgets and quietly allow the policy to lapse.

They basically pocket the premium paid and as the policy lapses they have no liability to pay.

Therefore you have something that smells a whole lot like an advance fee fraud. Promise to deliver and collect a few small upfront payments to cover costs, the basic principle on which the good old Nigerian scam works.

They also get the salesman to collect the names of at least a couple of your friends when they sell the policy and each time they come back to sell you enhancements so they use you as a springboard for further sales.

This from subsidiary of a foreign insurer, contrast this with the behaviour of the Sri Lanka Insurance Corporation (ok I was young and a sucker for all things insurance). I had a couple of much smaller life polices with SLIC, I decided I could'nt afford to maintain all these insurance policies and did not pay the premia. For a few years (about three I think) after I last paid, they kept sending reminders.

Therefore my friends, remember the old maxim caveat emptor and that everything you hear about insurance salesmen is true, just extend it to the companies as well.


Anonymous said...

It is a nice insurance plan. They may have studied to see how much of a risk there is in not paying when they do not send reminders

Padashow said...

Oh Yeah.. you even insured your miserable life? Padashow yawns.. !