I have never written about ULIPs here because I don’t like them one bit, and as a result don’t read or pay any attention to them. But last week a friend told me about a ULIP plan he was interested in, and I went in and checked it out a bit. That post is still work in progress, but I read this piece about SEBI issuing a show-cause notice to an insurance company, and thought I’d do a quick post about why I don’t like ULIPs.
From Moneycontrol:
Capital markets regulator Securities and Exchange Board of India, or SEBI, has issued a showcause notice to an insurance company, learns CNBC-TV18 quoting sources. This comes in the wake of insurance companies transgressing into the mutual fund territory, report CNBC-TV18’s Mrinalini Krishna and Avni Raja.
SEBI has sought an explanation from the company asking why one of its insurance products does not have an insurance cover and whether this amounts to selling mutual funds.
This is the reason I dislike ULIPs. Insurance and mutual fund investment are two different things, and they really don’t go well together at all.
People like ULIPs because they don’t like wasting money on insurance. Most people I speak to think of ULIPs as insurance that will get them at least some money back at the end of the plan, instead of term insurance which is just sunk cost.
The fact of the matter is – term insurance is significantly cheaper in terms of pure insurance and while you may think you are getting something back with ULIPs, you end up paying a lot more for insurance, and the investment portion of it is subject to market fluctuations anyway, so there is no real gain there either.
I am going to take a closer look at ULIPs next year because a lot of people are interested in them, but I strongly suggest that before buying a ULIP, you check out the term insurance rates from LIC to see how much you would have to pay for just insurance. That might just change your mind. Here is the link to check that out.
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{ 3 comments… read them below or add one }
To whomesoever it may concern -
I read and appriciate your concern here about ULIP.You being a blog writer do not like ULIP is only a matter of fact that its your individual like or dislike. Let me share my views on this :
1. ULIP is the safest way to diversify your investment and gain protection for a investor who has long term investment strategy.
2. ULIP is also a financially engineered product like Mutual funds and derivatives, but its less riskier as its well diversified.
3.If i talk about my own organisation we beleive in need based selling. We have solution to cater various financial needs which are long term in nature. The plans which we offer comprise -
1.Protection (pure insurance)
2. Investment (Estate planning)
3.Saving (to meet future financial needs)
4.Pension
4. Now Let us discuss each of this. We dont have any ULIP in protection category, as this require lowest pricing which is slightly impossible in case of ULIPs.
Investment – People who wants to put one time money and expecting a real growth without any risk in long term are the ideal prospect for this category.
Saving – I Agree there are many avenues of saving your funds still people prefer ULIP over other for following reson -
* Integrated Insurance cover at nominal charges
*felxibility
*transparency
*tax benefit under section 10 10 (D) of income tax act.
*Diversification
*Good returns (which may beat MF over long term)
*Liquidity
5. Now can you suggest me a sloution for a person –
Who does not understand market situations and lack financial expertise, Who wants a real growth for his money, have long term saving prespective, and at the same time wants a protection cover towards the amount he invested ………???
6. Sir there are millions of recepies to satisfy the hunger, i cant say pizza or any other fast food is not a right choice to satisfy once apetite. Its a matter of choice. If i like pizza i will eat and if i dont i will not. Thats what we call freedom, freedom to decide …..
7. Last but not the least – “profitability is matter of priority ” . So a person who have certain priorities which is only served by ULIP why to complicate the matter by buying two different product and maintaining them.
I hope i made myself clear.
Regards
Shweta
Can you support even one of your points with data?
What data do you want???