ULIP’s as an investment is a very good vehicle for wealth creation ,but we are totally against the way Unit Linked Insurance schemes are sold by insurance company representative’s and insurance advisors.

Can you compare a ULIP and Mutual Fund alone on any parameters ? The truth is a big NO.

Can you compare ULIP with only term insurance plans ? The answer is again a big NO.

Can you compare ULIP with a Term Insurance Plan + Mutual Funds ? The answer is quite possible.

We recently tried to compare ULIP with a traditional insurance plan like Term Insurance and Mutual fund ( ULIP and Term Plan + MF investment). We called a representative from an insurance company and asked for a comparison of ULIP and Term Insurance plus MF investment and to our shock what we got was a comparison of ULIP with MF investment comparing the Fund Management Charges and showing ULIP as a better investment option than Mutual Fund. The lady had not taken into consideration the Administrative charges and the Mortality Charges.

Please be very cautious when you are planning to buy any Unit linked Insurance Plans and do not blindly accept the EXCEL sheet or illustration shown by the insurance company representative. The fact is very few people will give you a correct working. Every insurance representative will show his insurance plan as best compared to any other offering in the market, obviously he has his own loyalty and a big factor is the commissions are very high and people do not understand it properly.

When it comes to comparison of ULIP it has to be with a pure insurance plan along with investment’s, Why ? because a ULIP or Unit Linked Insurance Plan is a combination of Insurance and Investment and therefore the comparison has to be made with a pure insurance cover and investment’s in Mutual fund.

It all boils down to the charges and the actual amount invested in the market.

ULIP’s usually have following charges built into it :

a) Up-front Charges
b) Mortality Charges ( Charges for providing the risk cover for life)
c) Administrative Charges
d) Fund Management Charges

Mutual Fund’s have the following charges :

a) Up-front charges ( Marketing, Advertising, distributors fee etc.)
b) Fund Management Charges ( expenses for managing your fund)

Term Insurance have the following charges :

a) Yearly premium ( for risk cover)
b) Service charges
We again iterate that we are not against ULIP but the way they are being sold in the market is quite worrisome. Our advise is not to buy any insurance plan unless you fully understand the terms and why it is beneficial to you.

Points to remember when you are buying insurance specially ULIP’s
a. Do you need it, if yes why ?
b. What is the life insurance cover you are getting for the premium you pay.
c. Can you get the same insurance cover with any other plan?
d. For how long will I have to pay the premium ?
e. What will happen if I stop the premium payments?
f. What are the charges if I discontinue the policy in between ( Expensive Option)?
g. Is the comparison given to you correct, does it factor into account the above charges for the sake of comparison.
h. If you receive an excel sheet please check the calculations on each cell.
i. Some companies charge expenses in the initial years and others at the end of the terms.
j. Illustrations with returns of 25% or 30% are quite common. Ask the representative to make a calculations on a 6% or 10% returns as per IRDA norms.

Our only advise is to be smart in buying financial products from the market , it is your hard earned money. According to VEDAS we are living in ‘KALYUG’ the rest you are smart enough to understand.