Why I won't buy ULIPs
90% (heresay number) Around 95% of all insurance policies being sold in
Insurance sellers say things like “for the long term ULIP is the best product”. Ask them what they mean by long term. Chances are they will say 5 years or more. Not true! ULIPs are cost effective only if held for more than 12-13 years. And for anything shorter than 10 years these are atrociously high priced products. Consider this…
From the first year premium ULIPs deduct anything between 12%-75% as premium allocation charge. In subsequent years (typically up to year 5) anything between 2-10% of your premium gets deducted. This is not all. There are mortality charges (which are used to fund the life insurance and also charged by vanilla policies), policy administration charges (flat rate of about Rs.50 pm), fund management charges (0.5% to 2.5%) etc. These are the mandatory charges. Of course there are many others too. The killer, though, is the surrender charge. This is levied if one wants to withdraw form the policy relatively early (typically within 5-6 years). This is not just another charge, after this one needs health insurance. Read this carefully - for early withdrawals the surrender charge can be as high as 30-75% of the accumulated fund in the investment account.
In my opinion it is better to buy plain vanilla insurance + a mutual fund separately, unless one is sure of staying invested for 15 years or more. If you still want to buy ULIPs, buy a plan from ICIC Pru. I have been told by a reliable source that, from a cost efficiency perspective I-Pru has the best plans. Of course, the return on the investment fund depends on the performance of the fund manager which one knows only with hindsight.
Disclaimer – I have no interest in how you put your money to work or any interest in promoting mutual funds or ICICI pru. Please consult your investment advisor before making any investment.
posted by bluesky @ 22:06
6 Comments:
kotler...tu US mein baitha hua Indian markets ki itni khoj khabar kaise rakhta hai re!
Waise gotta agree with your analysis. ULIPs are a marketing product not a financial one ;)
wow! this is good stuff u've written. And the cost effectiveness of 12-13 years part was enlightening. Very interesting. A real eye opener I say.
u sd do something more to popularise this ULIPs thing u have written. One guy trying to sell the reliance ULIP to me today eventually ended the conversation with " buy kaar lo, do me a favor!" after being exasperated by his futile attempts to sell a ULIP to me. And despite my telling him about the high charges etc and telling him about the 13-15 year effectiveness, he told me " this is a reliance ULIP - ASSURED 20% return in 3 years, plus tax benefits as well". note how they fool clients by telling them its assured returns.
esjay - as you already know, may ab des may hoon :)
g - anyone promising assured returns in any unhedged equity investments has potential to go to jail :)
btw check reliance MF (prominent schemes) returns in the last few months. Its near the botton of the rung...also note reliance capital performance in the same period. market punishies even reliance :)
Hey... this is great stuff you've written!! And that too in simple words! Loved it!
K
Well written article.
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