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:



(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.

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