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Sunday December 4th 2016
Technopark Living

Say No to ULIPs

No to ULIPsYou might have read about the recent spat between the market and insurance regulators, SEBI and IRDA. What was it about? Money, of course! SEBI is mandated with regulating investments and IRDA with insurance. Now, we have a product called ULIP (Unit-Linked Insurance Policy) which is brought out by insurance companies, but in effect is only about 5% insurance and 95% investment. Naturally, SEBI wanted to regulate this, but IRDA says no. Anyone in finance could tell ULIPs are hopelessly loaded against consumer interests as of now. Take a look at this:

Mutual Fund ULIP
Regulated by SEBI IRDA
Agent’s/Distributor Initial Commission 0% (Yes, Zero) 15%-40% (depending on product)
Annual Expenses Charges 2.25% 4% (first five  years) 2.25% afterwards
Lock-in period None 3 years (being increased to 5)

How is it that ULIPs are everywhere, Mutual Funds are rarely seen/advertised anywhere?

Simple, with the very high commission (upto 40%) on ULIPS, their agents are everywhere.

So high commission? But I don’t pay anything!

You don’t. But the equivalent units from your investment is reduced. (Just check your annual insurance statement). So you pay, but don’t know.

But I get insurance!

True, but the cost is very high. Ask for a term insurance instead. (Premium would be around Rs.8000 per year for a Rs.30 lakh policy!).

But I don’t get any returns in term insurance.

You are confusing investment and insurance. If your automobile has no claims in an year, you don’t expect anything back from the insurance company after an year. If you don’t get hospitalized for an year,  health insurance companies doesn’t give you anything back. That’s insurance.That should be insurance!

But agents do all the work. I just have to pay. Does anything similar exist for Mutual Funds?

Hmm..nobody works for free. Your best bet would be to visit HDFC bank (just a one-time affair). They allow online mutual fund investments in almost all major mutual funds, not just HDFC’s. And you don’t need demat account and such complexities, which are required in online share trading.

So, are Mutual Funds and ULIPs the only way for long term investment without bother?

There is the New Pension Scheme (NPS). We will cover it shortly in our magazine.

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5 Comments for “Say No to ULIPs”

  • Arun says:

    Hi,

    I am a ULIP holder of Bajaj Allianz. I have completed 3 years lock in period and I was assured that after 3 years I will get the total payout whatever I have invested. But when I asked the payout after 3 years they say that a surrender charge (56% of the first year premium, that will be around 11000 INR) will be deducted from the total account value. This is not mentioned anywhere in the offer document.
    Is this approved by IRDA ? If not, where should I register a complaint.

    • Aji says:

      Which is the plan?
      It is unlikely they will do something not mentioned in their offer document.
      Also check if is indeed the surrender charge, and not the premium allocation charges, which are usually very high in the first 3-4 years.

    • Editor says:

      IRDA has introduced a new toll-free number for registering complaints. It is 155255.

  • Arun says:

    Its the Capital Unit Gain Policy with Systematic Investment Plan

    What they said is the Surrender charges, not the Premium allocation charge. Also, i have to wait for 20 years if I want to get the full amount that I invested.

    I took this plan for Tax saving. But now I think I would have better paid the income tax that would be much less that the amount deducted as surrender charges.

    • Aji says:

      See this – http://bit.ly/94JUBO

      “Assuming that the policy tenure is 20 years and the customer wants to withdraw after three years, the policyholder loses 100 per cent of premium net of charges, 75 per cent if his policy tenure is a 15-year policy and 50 per cent if it is a 10-year policy.”

      This policy was banned by the regulator since it was too complex to understand – so it probably means it was mentioned somewhere in the offer document, though in a way nobody would probably understand


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