I have never written about ULIPs here because I donâ€™t like them one bit, and as a result donâ€™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 Iâ€™d do a quick post about why I donâ€™t like ULIPs.
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 donâ€™t go well together at all.
People like ULIPs because they donâ€™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 â€“ 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.
Photo Credit: Wheat_in_your_hair