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ULIPs Versus TermPlan+Investment: The Winner is Clear

I’m going back to a theme I have not posted on for a while now: ULIPs. Unit Linked Insurance Plans, I have always maintained, are hideous. Not only do they restrict you from a proper investment plan, they hide enough details to make you believe they are better than other investment avenues – well, for the most part, they are not.

Let’s take the example of ICICI Prudential’s “LifeStage RP” ULIP. Their brochure mentions this:

So I said, heck, maybe they’re the smart ones. Let’s compare this, I thought, to a regular term plan plus investment. You could invest in anything – from ELSS schemes, to FMPs with a reasonable yield etc.

So I assumed on one hand I would pay Rs. 50,000 premium to Mr. ICICI for 20 years, under the “100%” protector fund, assuming 10% returns annualized. On the other hand, I would buy a term policy now, and pay annual premiums to it from the Rs. 50,000. Whatever was remaining, I would invest in something that returns 10%.

The Lifestage RP plan shown provides a 500,000 cover (okay, it’s useless, but still) above the fund value, so the correct comparison is to pay premium for a pure-term policy of Rs. 500,000 for 20 years. I took the LIC Anmol Jeevan rates, for my age (34), with an annual payment (it comes to Rs. 2100 a year, plus service tax; I’ve assumed Rs. 2400).

Here’s what comes out. Click the image for a larger view:

ULIPs Versus TermPlan+Investment: The Winner is Clear

(Note: I got the fund value details etc. from the ICICI Premium Calculator, for my age.

Salient points:

  • Term Plan+Investment yields 29.99 lakhs after 20 years, versus 25.62 lakhs for the ICICI plan.
  • The insurance cover is exactly the same in both cases. But the death benefit (fund value plus insurance) is significantly greater for TermPlan+Investment.
  • That means ICICI’s ULIP is snatching away 4.37 LAKHS off your returns. That’s a massive loss in comparison with your investment and return – nearly 20%!
  • You might say A ulip provides tax benefits. But you probably already max those out, given the limit is Rs. 100,000 a year, and you need to fit in children’s schooling costs, mortgage principal repayment and forced savings through EPF in the same limit. The ULIP probably does nothing (oh, and you can get a similar kind of benefit if your “investment” is in ELSS funds, or tax-deferred bonds)
  • Effectively you pay over 2.5 lakhs just as charges over the term.
    Of this, the mortality charges (included in “Other charges”) add up to only 41,000. The remaining is lining advisors’ and ICICI’s pockets.

  • They tell you they have added Rs. 24,000 in four installments – but even that does NOTHING to your return. Still short by 4.37 lakhs!

Ranting: ULIPs are a sin. A blot on the face of mankind. And womankind. Oh, and childkind in the worst way. I can’t provide any other suggestion to anyone who owns a ULIP other than – find the right time and get the hell out.

That was a rant only. But I hope this post will show you how you can evaluate different avenues for investment, and specifically see how your advisor is likely to be hoodwinking you. Even if he is a relative. In fact, especially if he is a relative.

I’ve received a lot of mail asking me to help with ULIPs from people who have invested and are feeling conned. I can’t respond to each one for lack of time – but please do this kind of research before you get in. And if you’re already in, you have to “book” your losses and only consider whether getting out now is better than staying in a couple more years (or negotiating a premium holiday etc.).

If you ask me, I would never invest in a ULIP, ever. I don’t want to ban these products – I’m all for freedom here – but I ask you this, if a bank said they would give you 2% return on your Fixed Deposits, will you invest? Especially when you can get 3.5% in a savings account? The 2% offer isn’t illegal, it just plays on how stupid you are at a given time. ULIPs prey on the same thing, under the guise of an otherwise less-than-toxic word: Insurance.

  • roshan says:

    >awesome post deepak..thanks for the effort. i wish you reach a wider audience thru print/television media to benefit even more ignorant people.

  • Rohit Chauhan says:

    >Hi deepak
    its no wonder that when you walk into banks, you have army of people pushing these ulip plans.
    these plans are a rip off, but very profitable for banks and other such companies.
    i have relatives selling this stuff and they get a decent incentive to sell this crap.


  • Oracle says:

    >am more surprised to not even more comments on this post. most of ppl having this kind of products under their belt but exit cost is too much. everything was fine when market was going ga ga every month with 3-4% (making annual returns of 30-40%). but everything changed since jan 2008. irda must come with no load ulips like no load mutual funds and force players to launch products without any brokers/agent’s commission. life insurance players says that they pay for brokers/agents, hence that much heavy charges. worst is, some ppl who blog about personal finance products defend this kind of products.

  • Sampann says:

    I have read a lot about ULIP and totally agree with the above article. In fact I have one ULIP policy for which I have already deposited three required premiums and now planning for redemption. I don’t know wat is in store for me when I approach Bajaj Allianz for that. But I am sure there will be hassles and end results will not bring smile on my face.

    My Mom also have an ULIP for which she has paid only one premium and now I have to decide whether it would be advisable to continue or simply discard it (Its approximately 30K value invested). Can anybody advise on this.

    Further all the above ULIP were sold to me by my very close relatives and I have one advise for everyone, never fall into this trap.. never.

    ULIP is a total crap. Even paying tax is more advisable than investing in these good-for-nothing tax saving schemes.

  • sreeni says:

    >What a concidence, I had very similar feel about these blade investment options which will guarantee only the revenues/profits/retirements for the insurance companies, their employess and agents and not necessarily benefit of their clients. If any of these companies are sincere atleast their charges (if not principle) need to be rationalized to the retuns.

    All these financial institutions sell ULIPs simply because they can charge more, guarantee their revenue for long and hide behind general safety comments like “you need to take long term perspective”

    I did lot of research and decided to put some lump sum money in retirement plan since charges are much lower for such bulk/one time investment. ICICI prudential has LifeLink super and Wealth Advantage which will charge 2% or less the assett allocation which seem to be lowest. It is not quite easy to compare the returns of these retirement plans as most of them have been released in the last 4-5 years and their mutual fund component performances are not quite easy to find.

    I would strongly urge separating insurance fron investments. LIC has cheated India for too long selling expensive traditional endowment and ULIPs which will give really low cover. Get a term insurance which will give good cover at really low premiums. For 25 lakhs, I am paying 8300 per annum for 20 years and i am 36. If you want to buy similar coverage in traditional or ULIPs your premiums are going to be ridiculous and may become unsustainable after sometime.

    After long research, here are my sincere advice –

    Separate Insurance from Investments – simply buy a term insurance. You will get good coverage at low rates (still we pay 10 times more than Americans!). Atleast aim for 20-25 lakh coverage. Don’t rely on employer provided insurances, you have the coverage as long as you are with the employer. Also starting insurance late will result in higher premiums for shorter terms.

    Try to invest in retirement/child plans which don’t charge too much upfront. Use really small percentage of your income/savings in these plans so that they are sustainable for atleast 5 years.

    Don’t get carried-away with brain washing about child education, marriage, retirement with current level expenses, they are emotional gimmics.

    Invest in good mutual funds as they are more liquid and flexible. If you want you can walk away anytime in the worst case 4-5% of the investment unline ULIPs where you are locked for 5-6 years without significant charges.

  • Anonymous says:

    >Hi Deepak

    I am totally agree with the above article.

    Can send me the Excel Sheet to my E-mail Id for My Ulip Plan Calculation.

    Email ID :

  • Siddharth says:

    >Excellent eye-opener, Deepak.
    Thanks for the efforts.

  • sharan says:

    >How about Aviva Young Scholar Child plan as investment for future of a new born child

  • Anonymous says:

    >dear all,
    welcome,thanks for this service.
    the above article is very true.i also work in the above company.innocent rich customers of icici bank are simply cheated yes cheated by so called relationship managers.we do this for our own selfish.

  • Sandip Sabnis says:

    >nice post…thanks man!!…

  • siba says:

    >Nice comparison. I have been looking for data points of not going with ULIP. The illustration was with LIC’s Anmol Jeevan term plan..what investment tool did you use alongwith it?

  • Raj Gopal Vuppala says:

    >Very few people are aware of mutual fund schemes that offer free insurance. They are much better alternatives to ULIPS, especially for those who want to save for their kids education.

  • Sachin says:

    >Great article Deepak!

    Like you said, the concept of ULIPs is similar to a bank that offers 2% rate when the std savings rate is 3%… It’s not illegal perse. But why is selling above MRP wrong?? this sort of thing should be seen in the harshest light as it goes beyond whats morally right.

    …the only good thing I see for us who now know about this scam is the satisfaction of not being in the masses that continue to throng ULIPs!! 😐

  • Anonymous says:

    thanks for the good work.
    kindly post your views on guareenteed NAV for 10 policy years from birla life insurance(platinum plus)
    thanks in advance

  • Murali.A says:

    >Hi Deepak,

    I read ur post today, i agree on quiet a few points u hav made about the comparison… leaving the tax benefit (the investor gets during the time of investment) we also need to consider the capital gain tax for calculation.. i am not substantiating ULIP's or Term+MF… we dont have the discipline we still do things only when we are forced to do, as term & MF's dont force them to stay at first sight of liquidity requirement they take out from these investments or stop it…there is no free lunch anywhere… so in ULIP's.. do proper research as Deepak has done before investing…NO PRODUCT IS 100% GOOD OR 100% BAD…take informed decissions

  • P Nair says:

    >In the comparison table there is one thing to be be considered.

    In Ulip you have considered the fund mnagment charges, whatever icici ulip may be charging( as per the embedded chart) but havnet considerd the recurring charge which MF is charging.

    So, if you keep deducting 2.25% from the fund value each year, the final corpus becomes rs 24.70 lakh approx. plz confirm.

  • kamlesh says:

    >This is very informative article – kamlesh

  • vishal rathod says:

    what is difference benefits between traditional policy and ulips policy in insurance and also policy life cycle???