Insurance companies are falling over each other to bring out ULIPs in new and attractive packages, thanks to it being accepted across India in huge numbers. More than 80% of the new premium income of Insurance companies come from ULIPs today.
But shouldn't this product be left to Mutual Funds who have been dealing with investments in the capital market with much more transparency and disclosures? Well, the Insurance companies have only added the insurance angle and are charging separately for that too.
Let's look at the charges for investing in a ULIP. Generally, a Mutual Fund charges 2.5% as entry load and 1-2% as Fund Management charges.
- Premium allocation charges: Companies charge from 5% to 70% as premium allocation charges in the first year. Ofcourse it comes down in the second and third year but still is substantial. This means that only the balance percentage will be invested in funds and the charge goes into commission and other administrative charges.
- The Mortality Charge of the Life Insurance Coverage: This is common for all the companies and depends on their mortality table.
- Fund Management Charge ranges from 0% to 2% depending on the Insurance company.
- Policy Administration Charges
- Sum Assured charge
- Surrender charges
Last but definitely not the least, the commission ranges from 10% to 32% for your friendly advisor. Companies also run schemes where they take high performing advisors to Singapore, Brazil et al.
And the investors will be taken to the cleaners!!
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2 comments:
Most of the financially savvy people know about ULIPs but still buy them. It is always better to go in for term insurance and invest periodically (keeping the discipline) in a basket of stocks/mutual funds. This way we are saved from financing of trips to singapore and brazil. The only thing is discipline in investing that has been the selling point for insurance advisors when they are asked to compare costs to the client in both above cases.
Tax benefit is a trick which ULIP guys use to promote their product against mutual funds. Many unseasoned investors get carried away with this.
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