Introduction
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.
also read:
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.
Insurance vs Investment
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).
Summary
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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September 20, 2010 at 2:49 am
Good article many insurance agents are mis selling the ulip poilicies by showing a picture of high returns.
September 22, 2010 at 11:35 pm
U r doing a good job by educating us all.
September 22, 2010 at 11:51 pm
Dear Sir, the previous blogs have been extremely informative. I, too have invested in long term SBI Ulips, but wish to terminate. Is it advisable to do so? Is it possible to do so at this stage? If yes, how much do I loose? The details of my ULIPs are as given below:
(a) Child Plan: since 2009, for 13 yrs
(b) Pension Plan: since 2009 for 22 yrs
Looking forward to ur valuable advice.
September 23, 2010 at 2:08 am
Sir,
With rspect to tailed mail from “Aviva Life Insurance Co. India Private Ltd”, I had purchased ULIP Policy on March 31, 2007 From the agent on saying that you will have to pay premium for min of 3 years.
At the time of selling the policy the company representative had told me that I will not be able to withdraw amount for next 3 years.
But after paying the first premium I failed to pay my subsequent premium due to personal financial problems.
Now when I approch the “Aviva Life Insurance Co. India Private Ltd” for the withdrawal of my policy the replied me that there is no surrender value to the policy due to non payment of premium.
But nowhere in policy document it was cleared that non payment of subsequent premium will lead to forfeature of the policy.
(Please refer copy of tailed mail Pasted below for the more details)
Sir, I will be very much thankful to you if you advise me that is this action of company not to pay any sum is legal or I have any remedy available against it to get my money back as per rules.
———————————————————————————-
(Copy Of Reply to mail from Company)
Dear Mr. Dhananjay
Thank you for writing to Aviva Life Insurance.
With reference to your appended mail regarding policy number REG1529341 , we understand that you want to surrender policy
We would like to inform you that your policy is in Early Lapsed Not Payable state due to non receipt of the renewal premium payment of Rs 25000/- per annum pending since 31.03.2008.
As per the terms and conditions you may reinstate/revive the Policy within two years of the due date of the first un-paid installment of Regular Premium.
Early Lapsed Not Payable : If the Policy is not reinstated within this 2 year time period, it will automatically terminate without value at the date of the expiry of the reinstatement period.
Hence, at the current situation our product and process does not allow us to reinstate your policy or generate any refund towards the same.
We would like to thank you for giving us an opportunity to serve you.
We offer you 24 X 7 access to your Policy Information through our SMS and ‘Policy Web Info’ services. Should you have any further queries and wish to avail any of these services, kindly visit our website http://www.avivaindia.com or contact us at 1-800-180-2266 / 0124-2709046 (8 am – 10 pm, Monday to Saturday). You may also write at customerservices@avivaindia.com to get a reply within 2 working days.
Sincerely,
Deboshree
Customer Services Group,
Aviva Life Insurance Company India Ltd.
Aviva Tower, Sector Road, Opposite Golf Course
DLF Phase – V, Sector – 43, Gurgaon – 122001
Fax no. 0124-2571210
———————————————————————————-
From: Dhananjay (IN – Mumbai) [mailto:dwadera@DELOITTE.com]
Sent: Friday, September 17, 2010 3:01 PM
To: customer services/gur/aviva
Subject: Surrender / withdrawl of ULIP
Importance: High
Dear Customer Service Desk,
Aviva Life Insurance Company India Private Ltd.
Following is the details of My said policy. I wish to withdrawal the Total Amount of the policy.
I will be very much thankful to you if you provide me the Actual Surrender Value & Current Status of the policy as on any date around in the month of Sep or Oct 2010.
Also provide me the Address in Mumbai City & in Nagpur City for the purpose of the withdrawal of the sum.
Name of the policy Holder – Dhananjay
Date Of Birth – 22-Nov-85
Company – Aviva Life Insurance Company India Pvt Ltd
Plan – Easy Life Plus Unit Linked – Growth Fund
Policy no. – REG1529341
Client ID – 1071123
Premium Amount Rs. 25000
Premiun Frequency – Annual
First Premium paid date 31-Mar-07
Risk Commencement Date 31-Mar-07
Sum Assured Rs. 2,50,000
Maturity Date 31-Mar-17
After the Paymeny Of first premium No Payment has been made
Your reply will be highly appreciated.
Thanks & Regards,
Dhananjay
October 22, 2010 at 6:27 am
Mr Krishna,
you are an authentic person. tks. can you advise me whether to buy hdfc top 200, hdfc growth or hdfc ulip crest that claims to give
minimum guarantee ( Rs 15 if purchased for Rs 10). I am confused. An early reply would be appreciated. I may remain invested for eight years. regds. deelip
November 14, 2010 at 9:01 am
Hi,
Recently i got job.I don’t have knowledge any knowledge in Investments and Insurance.I want to invest 1 Lack rupee/Year in order to reduce Income Tax.Can you please suggest what are best choices to save my money.i want to invest money for 10 years.
Shell i invest my money in insurances or Ulip’s or Mutual funds..Suggest me in details.
Thanks In Advance,
Lakshman Kumar M
December 1, 2010 at 1:55 am
Hi, I just want to know the fate of ULIPs with recent reduction in the ULIP charges by the regulatory in India. Someone was suggesting Canara HSBC Oriental Bank Of Commerce Life Insurance Dream Smart Plan which is a ULIP in comparison to a Mutual Fund.
I am still not convinced and haven’t bought it yet. Can anybody throw some light on this?
Thanks
Himanshu
December 10, 2010 at 3:39 am
Lakshman Kumar -
Go for PPF and MF -ELSS
Himanshu Gupta -
Avoid ULIP – Go for PPF and MF -ELSS
December 31, 2010 at 4:43 am
hi !
Im a finance student . Im working on my master thesis – whether ULIPS are Investment ?
could you help me getting sources where i can get more literature review .
Thank you!
January 3, 2011 at 6:19 am
Krishna, would like to talk to you, can I get your contact number?
January 20, 2011 at 4:57 am
i have a icici prudential ulip, till date i have premiums of rupees 80,000 but my nav is showing only 37,000…pls help me.
January 20, 2011 at 4:58 am
i have a icici pru ulip, till date i have premiums amounting to 80,000 but my nav shows only 37,000…pls suggest.
January 25, 2011 at 2:53 am
Hi,
I wanted to know about my ULIP PLANS as these company agents do not say about the drawbacks of the products.
I have 2 ULIP Plans:
1. HDFC Young star II bought in 2009 with annual premium of Rs-25000/. I have to pay the premium for first three years which i have already paid.
2. Birla sun life Platinum plus III bought in 2009 with annual premium of rs-60000/ which i pay quartley rs-15000/,till date i have paid rs-90000/.
I Know about the allocation charges for these policy.
I want know that how much return i will get after 5 years.Will i get 15-20% of interset on my investment.
January 29, 2011 at 2:36 pm
Hi Krishna,
Your article is really good. If you get a chance could you please review ICICI Pru Pinnacle 2 and HDFC SL Crest ULIPs. Please let me know what do you think about them.
Thanks,
Kumar
February 3, 2011 at 8:07 am
I still dont understand why ULIP is neither a good investment nor good insurance cover. I am sure I am missing something very basic here please help me understand:
For Eg.
premium = 20000
charges = 800
mortality = 1700 approx ( for 10 lac 170 – 200 per lac)
which would mean that only 12.5 % charges (against 25 per your assumption). and the cover premium is almost same as term insurance premium.
and since it would be linked to the investment unit in the company, wouldn’t it be managed by the experts in investment just like Mutual funds.
February 22, 2011 at 5:27 am
Hi
I have taken two policies from SBI Life- Smart performer and a ULIP in 2011.
The agent says the commision percentage has drastically gone down. Can you pls let me know what % can I expect as commission
Regards
Reddy
August 8, 2011 at 6:51 am
Pls provide me the NAV-of the two no fund of ICICIPRUE……….
1.MCGROWTH FUND
2.INCOME FUND
POLICY NAME- ICICIPRU….SMARTKID MAXIMA
POLICY-04.06.2009
November 3, 2011 at 11:38 pm
Hi,
I have invested in Met life’s Met smart Platinum plan where i need to pay rs. 1.8 lakhs per annum. I have paid 1st year premium and the fund value is only 1.61 lakhs now. That means it is a bad investement. If i dont continue to pay, the policy will no more be in force and the copany pays 4% interst on the current fund value. The interest and the amount will be paid at the end of 5 yrs. Is it a good idea to stop paying the premium. Atleast i can invest that money in some other plans…
Pls. advise…
Regards,
Swathi
November 14, 2011 at 10:09 pm
Hi,
This is all nonsense.All the ULIP’s are worthless unless you have bought the policy when the NAV is in its primitive stages where it floats around 10/-.I have invested into one ULIP policy by taking 1,00,000/- yearly premium and paid for 2 years.Today the Fund value stands at 1,60,000/-.Over and above the company deducts its own mortatility charges and fund management charges every month irrespective of the funds are running under loss or gain.I am stuck with the policy as if I withdraw before 3 years I will face a deduction of 30% of fund value again which is 30k more.I am in a situation where I am going to intentionally pay the remaining premiums for next 3 years to avoid any withdrawal charges knowing that my funds are going to be eaten by either by the company’s fund manager or by the market NAV losses.Not sure how to come out of such situation.
The company’s promise a growth of 6% to 10% whereas FD’s are today having a guranteed return of 9 to 10% which is far more secure than what the company’s ULIP policies are.
There is no responsiblity from the ULIP company if the NAV is always down for the past 1 year also(ie if their fund manager is investing badly).
If we are directly investing in the share market at least we are aware were we are investing and whether our intelligence is causing us a loss or gain,here once you have given the money the rest all depends on your luck.
Regards,
Naveen.
October 4, 2012 at 12:50 pm
Similar situation I have also. I have got the CanarahsbcLife Insurance . I pay 50,000 premium per annum for five years. I have paid till date three premium i.e. 1,50,000/- but my fund value is 1,36,000/- I am shocked.Next premium is due. I am fed up with the agent who assured me that you I will get 14-15% interest in this rather than FD which gives simply 8% at that time in 2009. I was not aware of this what is ULIP. I simply wanted to invest in FD. But the Sales man/agent of the company claverly done so due my ignorance about this. Any how two premium to be paid and leave for six seven years. Then withdraw.
December 2, 2011 at 12:30 am
Hi
30th Nov 2011, I took ICICIPrudential Pinnacle Super plan. But today I came to know from HDFC executive that HDFC crest is best compared to ICICI Pinnacle Super and he explained charges are less & highest guranteed NAV(150%) in HDFC crest, compared to ICICI pinnacle super (highest guranteed NAV 110%).
I already gave the cheque and the amount got deducted from my a/c today. I would like to cancel this ICICI pinnacle super…will there be any charges deducted for this cancellation?what is the procedure and within howmany days we can do that?
Once that is done, pls suggest me whether I should go for HDFC crest or mutual funds or any other investment plans..
Thanks in advance,
Radhika
December 19, 2011 at 10:42 pm
Where should I invest to get min 10% yearly return (not in Property or gold)? Is it a good to invest in PMS like INGVissa 0r Motilal Oswal?
Nitin
December 20, 2011 at 12:10 am
i guess all the experts i.e. aravinda, hari etc etc…went in shock cos there money drowned…no reply to people’s queries….hahahah
December 20, 2011 at 12:35 am
Shiva,
I guess you commented because the market is going down day by day. If that is the case then you are wrong.
When you are entering into ULIPs or MFs then you need to accept the ups and down. Best way to handle is either do smart investment periodically or do SIP. It will be averaged.
Today i am in loss of 15% but i haven’t stopped my investment into MF. I am still buying the units every month periodically in smart way. As long as you park the money into MFs for long term(more than 5yrs) it won’t harm you and it will generate revenue for you.
People who ever understand it better how MFs works then they never stop investing in this tough period.
Hari
January 6, 2012 at 10:16 am
ULIPs are best plans if purchased wisely by the investor, these plans work on the principle of high risk high return and low risk low return. At a young age when investment avenues are more preferable one should go for ULIPs instead of conventional plans.
January 7, 2012 at 1:33 am
sir,
I payed 50,000 as first premium for SBI Ulip last yer. I need to pay one more installment in this month or next month.
I am afried to pay, will not pay this year.
How to get back my first installment 50,000 with out loss?
January 24, 2012 at 9:23 pm
in my case, I have ULIP policies from HDFC like Youngstar plus and endowment policies, I seriously don’t understand the purpose when I’m paying 4000 Rs premium every month since Sept 2007 and my current fund value is 1.4 lacs, with insurance coverage just 3 lacs. Mortality and administration charges nevr decreased from last 15 months and unit price is down from many months. When the markets are doing finr what the hell the fund managers are doing.???, I’m under a huge loss and more over risks. for all agents i would say ULIP sucks!!!. Now just for calculations think, if I had invested same amount in cash certificates or tax saving cumulating deposits with good yield % and some small amount in pure life insurance for coverage upto 10 lacs is a good idea., everyone out there don’t invest in ULIP and lose money. Agents will do lot of marketing gimiks for their incentives/commission. Think wise, act wise.
January 30, 2012 at 11:56 pm
Nice Article…
February 9, 2012 at 1:30 am
Hi Krishnan/Hari,
I bought a ULIP from MaxNewyork in the year 2005 for investment purpose. I continued paying premium till 2010. The total premium paid by me in these 5 years was 105000/- and I was eligible to withdraw only 89000/-. I stopped paying premium after completion of locking period (3 yrs). It was real shock and painful for me to see this loss. I closed this policy due to heavy loss.
But in between i bought another ULIP in 2009, and it is still on. I am paying 20000/- annual premium and the locking period wil be over in sept’2012. I am in loss of 5000/-. Please suggest should i continue investing in this policy till 16th year? As per the current NAV growth, I can assume that my policy can gather only 400000/- on 16th year after investing 320000/-. Just 80000/- profit after long wait.
May 14, 2012 at 8:50 am
On our visit to India in Jan we got thrilled to know that HDFC Bank is offering 9.5% interest rate on a Fix deposit scheme, I and my wife got excited and went to the closet branch to inquire regarding the same, upon arrival we were greeted by the Bank staff who showed ample amount of hospitality and we felt very comfortable investing our money in form of Fix Deposit. We were called in a day after with all our paperwork and a new account was opened while I had an existing account in Sec 17 Gurgaon. I was kind of confused on why this new account is being opened but I kept my mouth shut because I was very excited about the 9.5% interest rate on 1 CR FD.
Next day on our shopping trip to Mohali I got an opportunity to visit Phase 7 HDFC bank where I was greeted by the manager and subordinates and I felt very welcomed. While discussing about the FD the bank manager introduced me to one of his subordinates and they both babbled about opening a Crest account with HDFC bank. They assured me fix returns and assured me that I will make way more money in next 5 years than I will make in a FD.
My situation is this that I didn’t want to risk any money because my daughter is going to college in 5 years and this money was to be used for her education, I presented my concern to the manager and he assured me the following.
1. We will get a Crest account @ 9.37 per unit for next 5 years.
2. On 5th year either I take my money and walk away with 15 Rs per unit or I wait for 7 years and get the benefit of max NAV which could reach 22 per unit.
3. Upon receiving the jolly good news I asked him about the fee associated with it. I was told 4% for 1st and 2nd year, 3% 3rd year and 2 % for last 2 years.
I got very excited and asked him to write everything on a piece of paper and give it to me so I have a quick note if someone asks me, the total calculation after 5 years of FD and Crest came out be 1 Cr and 71 lakhs which included my initial amount of 1cr in FD decreasing 20 lakh each year.
After coming to USA I got my CREST papers checked from a learned person because I had a suspicion that something was fishy after watching a clip on YouTube.
http://www.youtube.com/watch?v=Hpu3qI2TY9I
I feel very CHEATED and depressed by the lies told to us by your organization employees for a small commission.
FOLLOWING WAS TOLD TO ME WITH GREAT ASSURITY
• I was told that I will buy units @ 9.37 for next 5 years not as per going NAV.
• I was told after 5 years I can with draw @ Rs15 per unit ,Not after 10 years
• I was told after 7 years I can withdraw my money to the greatest NAV which is expected to reach 22 . That’s a total LIE
• I was told there is a TAX benefit. But they didn’t tell me laws can change any time
• I was told following fee will be deducted 4% for 1st 2 years, 3% for year after and 2 % for last 2 years. But skipped all other fee.
• I was promised 71 lakhs after 5 years if I get FD and Crest together
• I was told free insurance is provided with Crest account to attract customer but didn’t tell me there are hidden charges.
• My wife had to go through a intense MEDICAL CHECKUP but your websites says we don’t have to have medical.
• I was not told about the maturity date of 10 years.
• I was not told about the Risk/Mortality charge, Policy administration charge, Investment guarantee charge, fund management charge, all this charges come to Rs2 lakh and 48 thousand.
• The paper work came after few days to USA while we were still in India.
I have a disability which limits my capabilities to live a normal life like you or anyone else, this money was solely for my daughter’s education which somehow went into wrong
hands,for a mere amount of commission they have put I and my wife into a situation which will put us in lots of heart breaks if this is not resolved promptly.
Respectfully,
Kiran Dhanota and Major Raj Singh (Retired)
July 9, 2012 at 2:41 am
I too fell prey to HDFC SL champion suvidha and i have invested Rs 90000 over 3 years( 30 k/annum) and i have just paid the third premium a few weeks back.
I would like to know when would be the best time to pull out(I DO NOT WANT TO PAY ANOTHER PREMIUM) — now or just before the next premium is due. The current fund value is about 75000 Plus surrender charge of 15/30% of fund value.
Please do advice…
July 9, 2012 at 6:53 am
Hello Anonymous SL,
It is a difficult decision. I think your fund value would have reduced because of the market.
Are you in loss or profit?
Thanks,
Krishna
September 20, 2012 at 3:19 pm
you can get a best ulip plans go here
http://www.policybazaar.com/life-insurance/pureinvestment-insurance-india.aspx
September 29, 2012 at 11:11 am
I have also taken the ULIP of CanaraHSBCLife Insurance Ltd. I was ignorant. I was having the SB Account in HSBC. My ICICI Bond matured and I got transferred this money to HSBC. The Agent/employee Mr.Prasoon Sinha of HSBC misguided me. I told him to get the fixed deposit but he told a lot about ULIP. He misguided me that in FD I will get 9% interest while in ULIP I will get 15% interest. He immediately filled the form and personally came to my house for rest formalities. He did not tell me or advise me about this ULIP. I have deposited 1,50,000/- and two more premiums are still to be paid but my fund value is 1,36,000. I am very fed up now my hard earned money has drowned. First year they deducted 14000/- as charges. But I will advise every one these agents making fool to ignorant person who have not knowlege about this. After paying three premium I came to know what type of investment I have done.