Since the day I have started this blog, I have been telling, asking , requesting, begging people to avoid ULIPs and those who have taken my advise will be surely glad that they have followed my advise.
ULIP's real avatar :
ULIP is saving-cum-investment product that offers the option of life cover along with market liked returns.
Very few people know that ULIP is a long term product and gives decent return only if the holding period is a minimum of 10 years. However the sales persons were selling (mis-selling) ULIP as three year products (after October 2009 as 5 year products).
In a ULIP, the insurance component is very very low and does NOT serve the purpose of Family Protection. Due to the many hidden charges like Policy Admin Charges, Allocation Charges, Fund Management Charges, and all types of atrocious charges, ULIPs are designed to ensure maximum benefit for the Insurance Companies and Insurance Agents and NOT THE INVESTOR!!!! The commission is as high as 40%. This commission is paid by YOU and taken from YOUR pocket.
ULIPs are sold mostly as a 'only 3 year' premium paying product. Investors are not educated that the first three years are the costliest in terms of various charges that the investor pays. To cover this loss, the investor must remain invested for the full term of the ULIP. Calculations show that it is only after 10 years or so that this loss of income (by the way of high front end charges) is covered. The figure of 10 years also alignes well with the concept that any equity investment must be held for atleast a full equity cycle(typically 10 years).
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IRDA'S idiotic behaviour :
IRDA (Insurance Regulator Development Authority), instead of clearing the air has published idiotic advertisement inducing the Public to buy ULIPs and continue being conned.
IRDA's behaviour is so low, that people have started calling it as Indecent Regulator Disobeying Authority).
IRDA is functioning NOT as a Regulator with the interest of Investors in mind, but as a Front for the Insurance Companies.
SEBI needs to do more :
Firstly, SEBI needs to clarify what it was doing all these years. ULIPs are being mis-sold for more than a decade.
Why has the LIC ULIP not stopped by SEBI?. A clear case of double standards. Just like Mutual Funds, SEBI should remove the entire 'commission based structure' in the Insurance too and also allow investors to 'Directly' take the Insurance products themselves.
Do you know that for a Cover of Rs.20 lakhs (for a 30 year old), the ULIP cost would come to Rs.2 Lakhs per year whereas a Pure Term Policy would cost him only Rs.5000/-!!!!!!!!!! You are saving Rs.1,95,000. You can easily invest this amount in Mutual Funds and earn much much higher returns.
This way he is adequately insured and most importantly, getting higher returns.
Take only Term Insurance. They are the cheapest and best way to insurance yourself.
Balance invest in Mutual Funds.
Let me be very clear here. I sell Insurance also. But I have never ever sold any ULIP and I also request you to avoid ULIPs at all costs.
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I happened to be at your blog and it is an excellent effort by you to educate many people who have the intention but are not aware of the various options available.
As with ULIP's, my cents on the subject. I am 35yrs of age and I have a ULIP from Metlife(Met Smart Premier) which covers me for 100 yrs with a sum assured of 20 Lacs. My annual premium is one Lac. Minumum premium payment period is 3 yrs as with most ULIP's. Since the objective is to keep investment and insurance separate, I plan to make premium payments for the first 3 - 4 yrs and leave it to grow till the 5th year. At a very conservative rate I expect a return of 5% p.a at the end of 5 yrs. If I pull out my money leaving back one annualized premium (1 lac), I am still covered till 100 yrs of age without paying any more premium. I expect the amount that I have left behind to suffice the policy expenses till the age of 100. Net to net, what I spend for an insurance cover of 20 lacs till 100 yrs would be far far less than what it would be for a term policy. I guess Metlife has discontinued this policy and no more new policies are opened under this scheme. I am not sure if there are other ULIPS that give 20 times cover. If there are I would be interested in opening another one.
Really nice blog for investors.ReplyDelete
Will be giving answer to your query through a separate post. So, keep visiting the blog.ReplyDelete
thanks for your comments
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