ULIP is a hot selling insurance product these days. Unit Linked Insurance policy is an insurance policy where the funds are invested in the Capital market and the policyholder bears all the investment risks.

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.

Advantages:

Tax benefit under Sec 80C
Better returns than other insurance policies like endowment and moneyback.
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!!

So look befor you leap for a ULIP!!