Insurance Essentials 5: How the New Ulips were no better than the old ones

Blog:

Raj Pradhan | 14 January 2013

From 1st September 2010, new Unit-linked Insurance Plans (ULIPs) made their appearance. The sales pitch of insurance agents was that charges were reduced and, hence, the customer would benefit because more of his money will go towards investments. Financial planners were all over the business channels and print media praising the reduced charges of new ULIPs.

Were they really the new, improved product they were touted to be?

We chose six examples of the old and the new ULIPs from different issuers to compare premium allocation charges and policy administration charges and found uncanny similarities in all cases. We discovered, to our utter shock, that the new ULIPs fare worse than their notorious predecessors! Although our comparison is for 10 years, many ULIPs have a term of up to 30 years. And things don’t get better when you hold them for a longer period; in fact, they can get worse. Effectively, customers are worse off than before!

The front loaded charges of premium allocation charge and /or policy administration charge in old ULIPs are only spread over five years. The customer will still pay these charges. The lock-in period has been increased from three to five years in new ULIPs. The mortality charges don’t have any limitation; insurance companies are free to have own mortality charges based on their experience. Many private insurance companies have mortality charges much higher than standard LIC mortality charges. The fund management charges for equity funds are capped at 1.35% p.a. of the fund value and most new ULIPs have stretched themselves to go with 1.35%.

Look for yourself how new ULIPs are much like old ULIPs.

Dear Investor,
In case of any grievance / complaint :

Please contact Compliance Officer Pankaj Raheja at [email protected] and Phone No. - 91-22-35131664.
You may also approach CEO Debashis Basu at email- id [email protected] and Phone No. - 91-22-35131664.