In this article I want to explore few facts about the product Unit Linked Insurance Plans(ULIP) and why it is not the good option as many of the people unknowingly buying this product. This article explains about the ULIP and it compares with the mutual funds.
Also why agents are misleading the customers to buy the ULIP products instead of term insurance which offers the highest protection for the family. The product has gained very much of the negative because of its nature of fees associated in the initial years of plocy term. One more thing is agents have not properly communicated to the policy holders about the market linked products. If you have any doubts, please post it in the comments section. If you like the article, get the free email updates.
What is ULIP?
Earlier I have written separate article explaining about the ULIP Policy. ULIP plans are investing your money into the equity market. It is same like the mutual funds, but ULIPs are providing the life cover and linked to insurance policy. That is the reason why ULIPs are not good choice for treating it as the good insurance option. If you are looking into the coverage provided by the ULIPs, it is very low compare to the term insurance cover. Another drawback of the ULIP is charges on each installment of the premium. Almost 25% of your premium will be deducted as the charges. Remaining amount will be invested into the market.
You must be clearly differentiate between insurance and investment. Many people confuse with these two terms. Insurance is providing the protection to your family. If some thing happens to you and other family members dependent on you, how your family will survive without your presence. Insurance will protect your family by giving the lump sum amount which is sufficient for your entire family. In that case you must have the life cover of about Rs.50 lacs (it caries for each family). None of the ULIP policy will give you such a huge amount. When you are planning to start the investment, then forget about the insurance linked products and choose any of the products which offers good returns like Mutual Funds, Stochk Market, Fixed Deposit, etc. They offer good profit compare to the insurance plans.
Buy term insurance for higher coverage
It is always good idea to buy the term insurance to get the highest life cover possible. Normally agents will not suggest you to take the term insurance, because the commission on term insurance policies are comparatively low. It is the purest for of life insurance. In this plan, you will not get the money if you survive till the policy term. If you die, your family will get the good amount which is sufficient for the family. If you have any doubts, please post it in the comments section.
ULIP vs Mutual Funds
ULIPs are insurance products, where as mutual funds are managed by fund house to invest in the market. I would suggest you to invest in the mutual funds, instead of ULIPs. If you are investing in the mutual funds, there is 1.25% charges deducted on each payment. Where as in the ULIP policies the deduction is nearly 25%.
Update: IRDA has done lot of changes to the ULIP plans and has reduced the fees structure to make it more attractive (read more).
I hope this article will be eye opener for those who are investing on the ULIP policies. Please don’t continue the same mistake in the year 2010, also don’t trust the agents without your own knowledge. It is the common mistake done by every one. If you have any doubts please post it in the comments section.
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