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ULIP Strikes Again

Jago Investor, which has become an excellent site, has a post on misselling ULIPs.

The story: A family that had 10 L to invest, gave it to someone they knew in an investment bank, who considered all possible investments and chose the one that made him the maximum commission: the dreaded ULIP. It turned out the ULIP in question had 48% allocation in the 1st year, 24% in the second and 1% after that.

The advisor asked them to invest Rs. 3 lakh as premium. That’s 1.44 lakhs into his pocket in year 1, and another 72K in his pocket in year 2. In two years, that’s 2.2 lakhs gone, out of a given 6 lakhs.

Luckily this ULIP has a surrender value of 90% after year 1 and the family stopped further premiums, so they will get back 90% of whatever is left, after waiting for another two years. That still sucks – they will only see half their money while their investment advisor “friend” enjoys his share of the other half.

With entry loads banned, can you imagine any reason why ULIPs are useful? NEVER INVEST IN A ULIP, PERIOD. How can smart, intelligent people get suckered so easily? Buy term insurance and an equity or debt mutual fund, much much easier.

  • Nilesh says:

    >How can smart, intelligent people get suckered so easily?

    answer is, in first job with 1-2 yrs of exp (or fresh out of collage), with some money in hand. 30% rebate on tax on investment(in drain). very complex, structure of loads and returns on these policies.

    at least for me that was the reason 🙁

  • Siddharth says:

    >Yes I agree, we agree.
    But the Insurance means investment, has been so deep down put into brains of people for so many years.

    Term insurance is still very expensive as compared to term insurance I get in UK. But you wont get any endowment crap here, only pure term plans. one can get pay as you go each month. the month you dont pay you get rid of the plan. as simple as reading this.

    In the story, the investment advisor did what was best for his own self and not professionaly he should have done. The investor trusted him and he betrayed on their trust. Lesson learnt hard way. I believe the so called "investment Advisor" should be named and shamed in public.

    Many thanks for repeatedly making "jaagruti" in investors.

  • deepak says:

    >SIR IAM DEEPAK WAGHMARE i do not agree with your statement that there is no point in investing in ulips. I personaly think that a person who wants the benifit of stock market but do not have any knowledge can use it as the best option. There are meny plans in many companies wich are the best.
    There are some guranteed plan like SMART ULIP from SBI LIFE INSURANCE wich is the best ULIP PLAN in the INDUSTRY.

  • Yogi says:

    >Hi Deepak,

    I have been following your blog for a while now.
    I have a fundamental question, supposedly you the best resource I know who can answer this.

    We know that in another 50-60 years petrol would dry off this earth. If we apply basic supply and demand rules to it. We can expect the price of Petrol rise in future.

    Now, my question is can I just go ahead start buying petro companies (SIP mode) for my retirement?

    Or with depletion of petrol resource in future, should we expect that these companies would go in losses(as possibly other alternates to petrol would be available) and could be only option to be choosen for retirement purpose?

    I hope you enlighten me on this.

    Yogesh Tiwari

  • Siddharth says:

    I know you asked Deepak, but I was just curious if you believed and followed everything that goes in media these days?

    Good luck.

  • Siddharth says:

    >Oh and Yogi, I must appreciate that you are thinking of retirement planning today. Really do appreciate that.

  • Manish Chauhan says:

    >@Deepak WAGHMARE

    Oops .. How do you justify ULIP investing for some one who is just the way @Nilesh described ? A fresh college graduate who has no knowledge of things about stock market .

    Can you describe how a ULIP is good for a newcomer compared to plain Term insurance + SIP in Equity diversified MF ?

    Personally I think ULIPS are thing of smart people who are skilled in stock markets and take advantage of switching to its full to shift money from Equity and Debt and avoid any short term gains tax from equity which is posible with ULIPS .

    Its not a comman man product , thats the point .

    Not sure what others think ?


  • Deepak Shenoy says:

    >Nilesh: I hope that changes in future – it's distressing.

    Deepak: Since you're obviously an advisor I can't expect you to have revealed that 15% of first year and 5% of subsequent years of that "best policy" is gone as comissions. More: this "guarantee" is only if you stay for 10 years, and it's only for the first 7 year NAVs on specific dates. They get another three years to make up what they guarantee (and you lose the NAV upside).

    Amazing thing is: The fund returned about 35% since March 9 but guess what, because of that huge 15% upfront commission – only 85% of your money was invested, and that reduces itself to a 10% real gain. Mutual fund plus term insurance = much better.

  • Rishi says:


    Thanks for posting our story here. I will use your post as a method to force those guys to reverse our damage. I have posted the happenings on my blog too. Manish is a close friend who posted the story on JI. Thanks for all the support.

  • Px says:

    >Indians spend more time examining vegetable while shopping than chkg fine print while investing
    trust the brokers (old term).. fin advisers blindly or because of their laptops and suits.

    We hardly have an investment culture here no wonder we hold the largest pvt gold reserve in the world

  • Anonymous says:

    >dear all, welcome to the board.
    kindly see my posts in ranjanvarma blog under chsvja.

  • Anonymous says:

    >dear all,
    kindly remember all life insurance companies have come to india for promoting their own business.
    life insurance is a very huge capital infuse in the first 10 years of their entry.
    so, co.. like icici, reliance life had already spent 1500 cr..for paid up capital, sales expences etc..
    they want to recover the same with good returns as early as possible.
    so , the best way is to receive charges money from customers premium.
    once clients came to know about charges, names of charges are simply changed like policy administration charges which are upto 40% of annual premium.
    this charge is promoted by BIRLA SUN LIFE and very very fastly copied by others.