Now Reading: Why ULIPs may not beat term insurance or mutual funds
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Why ULIPs may not beat term insurance or mutual funds
Unit Linked Insurance Plans (ULIPs) combine life cover with market-linked investments, but high charges make them less attractive than separate term insurance and mutual funds, The Hans India reports. When a policyholder…
The Story in Brief
Unit Linked Insurance Plans (ULIPs) combine life cover with market-linked investments, but high charges make them less attractive than separate term insurance and mutual funds, The Hans India reports. When a policyholder pays a premium, the insurer first deducts multiple charges before investing the remainder. The premium allocation charge can be up to 12.5% of the annual premium, meaning a Rs 1 lakh premium could see only Rs 95,000 invested initially. Monthly deductions for policy administration (capped at Rs 500) and fund management (capped at 1.35% of fund value) further erode returns.
By contrast, a mutual fund invests the entire amount from day one, with only the expense ratio reducing returns gradually. For insurance, a healthy salaried individual can get a Rs 2 crore term plan for an annual premium of Rs 17,000-20,000. A ULIP's life cover is typically only 7-10 times the annual premium, so a Rs 1 lakh premium yields cover of only Rs 7-10 lakh, which may be inadequate for most families.
The Indian Opinion
The common pitch for ULIPs is that they offer both insurance and investment in one product. But the numbers show a different story: high upfront charges, a mandatory five-year lock-in, and low life cover mean most buyers would be better off buying a cheap term plan and investing the rest in a mutual fund separately. The real test is simple: compare the final corpus after 20 years, accounting for all ULIP charges versus a mutual fund's expense ratio. Which side wins that calculation?
Source: thehansindia.com
This story was synthesised by AI from the source linked above.
