Wednesday, March 28, 2007

Trade Your Insurance Cover

When will we be able to distinguish between Insurance and Investment?
Now, Trading and assignment of life insurance policies to third parties has been allowed under a recent ruling of the Bombay High Court. Assigning a policy means that one can sell a life insurance policy to another person and all the benefits (including death, maturity proceeds, critical illness cover, accident benefits, permanent disability and others) automatically flow to the person who has bought the policy .
Several unethical practices can be carried out in the name of trading in life policies.
  • The life of the policyholder may be at great risk if the policy is assigned to someone else. “Only the life insured does not change — and it is here that the possibility of moral hazards creeps in. The person who buys the policy will gain if the seller dies a natural or an unnatural death.
  • The emergence of a possible grey market transaction during the modus operandi and the problems mount.
  • In a fiercely competitive life insurance maket, an agent can hardsell his company’s policy by asking the policyholder to forgo or sell off his existing policy by arranging a buyer.
  • There has been various instances of money laundering and there could be a lot of misuse.
  • Trading in policies go against principles of insurable interest and increases the moral hazards.

Editorials are welcoming the new ruling without understanding the difference between Insurance and Investment. A free and fair debate is desirable. What do you think?

Blog on Finance & Business

Reviews, Tips, Calculators with an Indian perspective.
Post a Comment