3 Common Ulip Marketing Tricks To Ignore

  Author: Naveen Kumar

Unit linked insurance plans (Ulips) are one of the most popular life insurance product categories in India. Yet, in a little more than a decade it is also become well-known as product category where financial advisors, bank relationships managers and other people selling them have been guilty of sharp sales practices. This is more so, in the final months of a financial year, which is also the peak period for selling tax-saving investments like Ulips. While insurance regulator, Insurance Regulatory and Development Authority (IRDA) has worked hard to curb inappropriate sales methods and practices, including life insurance mis-selling, we are still far from a comfortable situation.

Investors need to be aware of the fact that not all people hardselling Ulips are well-versed with the product’s various aspects and how they could meet your specific needs. In fact, it should come as no surprise to you if we were to say that some of them might just be waiting to close a sale. It is in this backdrop, it becomes important for you to know of three common marketing spiels made such people.

Ulips for short term goals If a life insurance salesperson selling an Ulip talks about an investment horizon less than 10 years or more, be very alarmed. You need to remember that Ulips are long-term investments and therefore, are unsuitable for any need that may arise earlier. For instance, if you need to save for buying a home in four years, you need to look elsewhere. So what kind of goals is suitable for Ulips?

Well, you should be interested in Ulips, if you are looking to have the convenience of life insurance coverage along with investments, typically high growth 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 impact of turbulence on 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 any 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. 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.

It is also a smarter idea to have a portfolio of investments of major goals. This is so for two reasons. First, the amounts that we need for our major goals are often too large for investment to deliver to us. Second, this approach ensures that you remained reasonable hedged against any untoward outcome associated with any one investment. So, if it is your child’s higher education that you are investing for, you could also supplement your Ulip investments with equity funds, large cap stocks, along with comparatively higher return fixed income investments such as Public Provident Fund (PPF) and even small amount gold exchange traded funds.

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, such as that through an Ulip, be prepared to pay higher charges than ELSS. You might also seek an Ulip, if you like specific product features like premium waiver in case of Ulips meant for children’s future or child Ulips. Remember, Ulip also has a mortality charge for the life insurance cover.

Clearly, you need put some thought before you buy an Ulip. Since it is you who will be paying the annual premiums for a long time, you need to have a very good idea of why you are buying an Ulip. By doing this you can ensure that you are not a victim of any hardselling or mis-selling.