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What is ulip insurance

what is ulip insurance

Insurance companies are no longer focused on insuring your life, health & assets.

They are more eager to manage your investments. Almost 60% of their new insurance sales are ULIPs. Their profitability depends largely on attracting investments in the garb of life cover.

The most common misconception of retail investors is the belief that insurance is a part of one’s portfolio.

Objective of ULIPs: Triple benefit: Life Cover, Tax Benefit and Capital Appreciation.

Objective of MFs: Good returns, Various investment choices, Tax benefit in ELSS.

Tenure of ULIPs: Minimum tenure of 5 yrs. Max. term depends on age. 3 yrs. lock-in

Tenure of ULIPs: Open ended- no tenure. Close ended-fixed tenure. ELSS- 3 yrs. lock-in

Investment amounts in ULIPs: Determined by the investor & can be modified as well, but high.

Investment amounts in MFs: Minimum amount is determined by the fund house. As low as Rs.500

Expenses for ULIPs: Agents get very high commission so initial charges are high. Some of them are: Premium Allocation Charge, Risk Cover Charge / Mortality Charge, Policy Administration Charge, Fund Management Charge, Rider Charge. Other charges are:

Switching Charge, Service Tax Charge, Miscellaneous Charge / Alteration Charge.

Expenses for MFs: Upper limits of expenses chargeable have been set by the regulator. Max. 2.5% p.a. Quarterly disclosures are mandatory. Entry load of 2.25% for equity funds.

Transparency of ULIPs: Ambiguous on cost structuring, sum assured, terminal benefits, benefit illustrations, term commitment, policy terms etc.

Transparency of MFs: MFs have a standardized and convenient investment / redemption

format and costs. They are very transparent and easy to understand.

Portfolio disclosure of ULIPs: Not mandatory. In spite of IRDA guidelines portfolios are not disclosed.

Portfolio disclosure of MFs: MFs disclose there portfolios on their websites and send monthly fact sheets to investors.

Fund investment risk in ULIPs: All money goes to the fund of the insurance company.

Fund investment risk in MFs: MFs diversify your money.

Direct investment in ULIPs: Not possible. Only through agent.

Direct investment in MFs: Now possible. You can avoid 2.25% entry load.

Redemption of ULIPs: On maturity, surrender of policy after 3 yrs. or on death. Surrender after 3 years is very expensive. Different surrender values.

Redemption of MFs: Highly liquid. MFs have tremendous flexibility. Open ended funds can be redeemed any time. Small exit load. Returns = NAV x Units

Returns on ULIPs: Investment amount reduces due to high expenses. Lower returns.

Returns on MFs: Higher returns than ULIP if invested in equity fund.

Options for returns on ULIPs: Only in the form of capital appreciation or insurance cover.

Options for returns on MFs: Two options: Dividend or Growth.

Modifying asset allocation of ULIPs: Switch overs permitted for free or at a nominal cost.

No option to switch between companies.

Modifying asset allocation of MFs: Entry/exit loads have to be borne by the investor.

Tax benefits on ULIPs: Sec. 80C benefits are available on all ULIPs.

Tax benefits on MFs: Sec. 80C benefits are available only on ELSS funds.

Category: Insurance

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