3 Common Ulip Marketing Spiels To Ignore

Beware of three common marketing spiels of some financial advisors trying to hardsell unit linked insurance plans (Ulips) or even missell them.

Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. You are bound to come across financial advisors, life insurance brokers and bank relationship managers trying hard to sell unit linked insurance plans (Ulip) to you. More so, in the final months of a financial year, which is also the peak period for selling tax-saving investments.

Not all people hardselling Ulips are well-versed with the product’s various aspects and how it could meet your specific needs. Some of them might just be waiting to close a sale. In such cases, you need to see through three common marketing spiels from such people. Shortly, we will tell you about what they are and why you need to be cautious.

Insurance companies and advisors often use some marketing spiels to lure you to invest in an Ulip. While Ulips can be a good investment for many but you should be careful about its suitability in your financial situation.

Ulips for short term goals
If a person selling Ulip talks about an investment horizon less than 10 years or more, be alarmed. Remember, Ulips are long-term products and it is simply pointless to buy it for any requirements that might arise earlier. You should be interested in Ulips, if you are looking to have the convenience of life insurance coverage along with equity investments. Such investments will reward you over periods of 10 years or more.

During the early part of the Ulip tenure, as with all equity investments, your investment is likely to be subjected to equity market turbulence. The amount of turbulence as reflected by your returns, declines over time. That’s not all. You also have a lock-in period of five years when you have no access to your money.

One Ulip for one goal 
Buying a Ulip can be part of the solution but not a silver bullet for a financial need, say child’s higher education. The reason: your savings depends on how well your investment does. Beware of any person who projects your money growing at very high rates. Life insurance regulator Insurance Regulatory and Development Authority (IRDA) only allows illustrations at 4% and 8% returns.

Much also depends on your regular investment amount. So, if you need to invest Rs 10,000 every month for your child’s higher education and you get to save only Rs 5,000, you are unlikely to succeed even if your Ulip does.

Unjustified comparison with ELSS
In the recent years, the various charges related to Ulips have been brought down by IRDA. While Ulip charges now compare well with another popular tax-saving product, equity linked savings scheme (ELSS) offered by mutual funds, many Ulips still have a higher impact of charges, such as those related to fund management and policy administration. Among the exceptions are likely to be online Ulips. This is an important fact to consider since charges eat into your returns and result in lesser savings for the same returns.

So, if you are opting for a combination of life insurance coverage and investment, typically equity investment, through an Ulip, be prepared to pay higher charges than ELSS. You might also seek an Ulip, if you like a product feature like premium waiver in child plans or specifically, child Ulips. Remember, Ulip also has a mortality charge for the life insurance cover. So, you need to careful of marketing spiels that make uninformed and misleading comparisons between Ulips and ELSS.