Three: Mis-selling by insurance agents The third point combines the first two. In all probability, most investors aren't made aware of the issues mentioned above. Which brings me to say that I don't have a problem with ULIPs being sold -- but I do have a problem with them being mis-sold.
None, and I repeat, none of the ULIP investors that I have spoken to actually know the extent and details of the charges that they would be paying. When they come to know, their reaction ranges from downright disbelief to indignation and a feeling of being cheated. After all, who would want a large chunk of their money being expensed off even before the investment has taken place?
The problem is three-fold
One: misrepresentation on the part of the agent. Two: lethargy on the part of the investor. Three: huge incentivisation on the part of the insurance company.
If you think about it, the solution is pretty simple. Stop over-incentivising. Automatically mis-selling will be discouraged.
Compare and contrast, before investing Though most insurance sellers tend to make tall claims about the return-generating potential of the product, IRDA has specified that a rate of 6% per annum (pa) and a rate of 10% pa are the only two rates that can be used to forecast the return potential. Therefore, first, before committing to any particular ULIP, check out what else is on the menu.
Check out the products on offer by competing insurance companies. To be on the conservative side, direct the advisor concerned to use a return of 6% pa, over the entire tenure of the policy to ascertain the maturity value of the policy. This way, all expenses will have to be necessarily factored in. At the end of this exercise, you will have a much better picture in terms of the strengths and weaknesses of competing offers.
The bottom-line A ULIP isn't a bad investment per se. There are a few ULIPs (and I cannot emphasise on 'few' enough) that actually make good investments. However, these are long-term wealth-building products where you break even, usually after six to eight years. And if used as short-term investments will almost always cause your financial health to suffer. So, just like buying any other product, do insist on complete information before committing your funds.
