Amid all the ULIP hoopla in the media, (on my blog too) I got a call yesterday from a distant relative asking me whether it’s a good idea to invest in, what else, a ULIP!
When I asked him whether he has read the recent spat between the regulators on ULIPs, he said that he’s heard of some “Noise” on the issue. But now that he wants to invest some money through his friendly agent, he just wanted to cross check!
I asked him whether he has the option of investing in a Mutual Fund. He said that he’ll have to find that out as his “Friend/Advisor” has not told anything about that other than that there will be some service issues.
Now, I can’t use jargons like front loaded charges, premium allocation charges, asset management charges to make my point with him.
This is what I told him:
ULIPs are a bit costly in the initial years. If you have a long term perspective of > 10 years, trust your friendly agent, and will get proper service, take this ULIP. Also ask for top-up options where you can get lower premium allocation charges. Otherwise find a MUtual Fund Advisor and then talk to me again.
The point is despite so much noise about ULIPs, how do you help an ordinary investor make a better decision? The noise and the hype does not help the ordinary investor. Also, there is a tendency to either extol/disparage the contrasting views. ULIPs are Evil, shout one group. The other group tries to defend ULIPs with all its’ might.
To me, ULIPs is a conceptually a very innovative product. The vast distribution channel of over 30 lakh agents can be leveraged to bring insurance as well as investment to the vast majority of ordinary Indian investors.
But the heavy front loading charges has made ULIPs a costly product which seems to be of much more profits to the sellers (Agents) than the buyers (Policyholders). This information/benefit assymetry is bad.
My hope is that the current spat will help rationalize this excellent product and make it useful for the ordinary Indian investor.
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Well, what I want to know is
DOES YOUR RELATIVE REQUIRE AN INSURANCE COVER OR HE WANTS TO INVEST?
If insurance he is looking for then why not go for cheap product like TERM INSURANCE?
If he wants to invest, then why to pay mortality charges in the ULIP every year.(Provided he is adequately insured).
-rakesh
i m looking for a family floater policy and evaluating some options from max bupa, icici lombard and apollo? i am quite a beginner in this area and have no clue on the hidden agendas that i mostly hear people talking abt. can you suggest which provider i should opt for.. thanks for your advice in advance!
Ramesh. it is good that you’ve decided to take a policy, but what are your requirements? what is the cover you are looking for? how many people are you looking to cover in this plan, the age groups? etc .. you need to provide these basic details for anyone to really help with some advice
Thanks Vikas for the questions we need to ask. They’re really important.
Ramesh, other than what Vikas asks you to do, I would also suggest that you check out some Public Sector General Insurers. Their service may be a bit slow, but there’s less of the hidden agendas there.
Rakesh, that’s a valid question and I need to get back to him!