Unit linked insurance plans (ULIP) is a bestseller today. Life Insurance companies are falling over each other to introduce and market their ULIPs. Backed by aggressive selling by agents and the booming stock market, the sales figures they have notched up is mind blowing.
Traditionally, life insurance products have usually been considered as ‘safe’ investment options, which also offer a life cover. However, since unit linked insurance plans (ULIPs) burst onto the scene a few years ago, the rules and definitions of life insurance have undergone a sea change. The popularity of ULIPs can also be attributed partly to the scrapping of ‘assured return’ insurance schemes and falling interest rates which rendered conventional products like endowment plans unattractive.
And instead of taking insurance based on their economic value( human life value-HLV), people are going for ULIPs which is Mutual Funds plus term assurance rolled into one. To my mind, one should look at the following issues before writing the cheque to your persistent agent.
Transparency: The quality of data and its presentation need to improve significantly, if investors, both existing and potential, are to be able to study portfolios and make intelligent decisions. ULIP portfolios need to be disclosed regularly. Mutual funds are required to disclose all relevant information like portfolio, assets under management (AUM) and the benchmark indices to name a few.
Expense: The annual expenses incurred on the ULIP are 3.50% (2.00% recurring and 1.50% fund management charges) apart from insurance charges, In contrast, mutual funds are managed at an annual expense of 2.50% (maximum) of net assets.
Past performance: While the Mutual funds have a history of past performance, the ULIPs have a short history and the current bull run to boot. Performance of a fund manager will be tested when the going gets tough. ULIPs have not been tested apart from the May crash.
Isn't it more worthwhile to go for term assurance from an Insurance company and a trusted and performing equity fund from a Mutual Fund/AMC?
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8 comments:
आप किस तरह के 2% recurring खर्चे की बात कर रहे हैं यह स्पष्ट नहीं है क्योंकि इस तरह का कोई खर्च यूलिप में नहीं होता। लम्बी अवधी में यूलिप म्युचल फंड से ज्यादा वृद्धी दे सकता है।
In the new ULIPs, there are more than one charges.
1. Premium Allocation Charge of 13.5 to 16.5 % for the first year and 2.5% thereafter.
2. Policy Administration charge: Rs. 60/- per month during the first policy year and Rs. 20/- per month thereafter, throughout the term of the policy.
3. Fund Management Charge: This is the charge levied as a percentage of the value of units and shall be appropriated by adjusting NAV at following rates: 0.75% p.a. of Unit Fund for Bond Fund 1.00% p.a. of Unit Fund for Secured Fund 1.25% p.a. of Unit Fund for Balanced Fund 1.50% p.a. of Unit Fund for Growth Fund
4. Switching Charge: This is the charge levied on switching of monies from one fund to another. Within a given policy year 4 switches will be allowed free of charge. Subsequent switches in that year shall be subject to a switching charge of Rs. 100 per switch.
In HDFC Standard Life Insurance the premium allcation charge is 30% for 1st and 2nd year and 1% thereafter!!!
1. Premium Allocation Charge is charged only if you keep on investing every year, that is true for MF also where its called entry load.
2. As you said yourself FMC is lower in ULIPs.
3. Switches are free in ULIPs(In some cases 24 swithes in a year are free) and if you compare with MFs switching cost you upto 5% as exit and entry load.
So if you calculate for longrun, ULIPs are cheap comparing with MFs.
regrds.
How do you justify premium allcation charges of 30% for 1st and 2nd year as against 2.5% in MFs?
Btw, I don't sell Insurance or Mutual Funds. I'm a small investor who wd like to be properly informed. And I'm surprised that informed people don't really know the real charges behind a very good concept of ULIP.
Lower FMC can overtake the firs two years charges in long run and in a plan for more than 10-12 yrs ULIPs are much cheaper.
can you please tell that are the mortality charges of all the companies are same in ulips
Rohit,
No it is different for different insurers. But the variation is not much.
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