Why not to buy an ULIP

Personal Finance / Leave a Comment

You must be listening to a lot of ULIP (Unit Linked Insurance Plans) news and the fight/tussle between IRDA (Insurance Regulatory and Development Authority) and the SEBI (Securities and Exchange Board of India). Looks like this will end up smoothly as the government will surely intervene and ask them to sorting it out in an amicable fashion instead of throwing mud on each other in public.

BUT my post is not about why SEBI is trying to stop all Insurance companies from selling ULIP’s – to understand this tussle please read –  ULIPs to be regulated by IRDA  My post is about educating all Indians on why they should NOT buy an ULIP ever!
Rely on the 3 Basic Rules – 
  1. Invest in Insurance plan for insurance,
  2. Invest in Mutual Funds for Tax Savings/Investments, and   
  3. NEVER MIX these 2.
Seriously, What do you think of when you buy an Insurance plan? With all probability a policy would have been SOLD to you instead of you buying it, isn’t it? – if the damage has already been done then I cannot really do much. Generally your relatives only are the real culprits – your dad’s/mom’s brother’s son etc will sell off at least one policy in your family and as its just a small amount your parents would insist you comply PLUS its a family matter hence you end up buying one! 

But the next time you plan to buy a policy (yes you should plan to buy an  Insurance policy rather than someone pushing it on to you) Insist on a TERM insurance plan – Its the simplest form of insurance and solves the purpose – cheap n best.This plan (from any company) will payout the insured amount to your family if you are no more. simple.


If you need to invest you money for tax purpose or for generating better returns as compared to what it would earn lying idle in your bank account then invest in Mutual Funds. To understand where to invest in Mutual Fund go to the Value Research site and check out for 5 Star Funds – Schemes which have given very good returns in the last 3/5 years…choose any one, invest n relax – these days you can ask for a online access and transact online! 


Now the basic point why am writing this blog – DO NOT MIX these two aspects – An Insurance  policy should be for Insurance and Mutual Fund should be for investments. What ULIPs do is marry these 2! Which seems to be a fatal combination am totally against. As ULIPs charge a very high sum as service charge, mortality charge (as this plan involves insurance) and admin charge. A friend of mine bought an ULIP from ICICI Prudential a couple of years back with a Annual premium of Rs. 50,000 (he intended to use it for tax saving, I had warned him but he thought he knew more than me 🙂 and paid the price later) as the entire amount of Rs. 50,000 (first year’s premium amount) was absorbed as charges! Can you beat that? 


ULIP is a marketing gimmick – Don’t fall for it. 


You may also want to read – Why ULIP is a Bad Investment

 

Must Read

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top