The most mis-sold financial product

We strongly feel that ULIP is the most mis-sold financial product in the market. We have seen a lot of individuals who have ‘invested’ in ULIPs without even knowing the ABC of what it is. Most of the folks who sell ULIPs are even unaware of what they sell. The thing often repeated by the person’s marketing these ULIPs are ‘Growth fund of our ULIP has yielded returns above 40% for the last three years consistently’. People get sold immediately and later grieve over it.

One of the oldest player in Insurance industry sold a ULIP plan and made news before a couple of months. Thanks to its agents who mis-sold it effectively. IRDA (Insurance regulator) also made a public statement on this one condemning such practices. Such things wouldn't help unless the buyer is AWARE and AWAKE.

We went through the brochure of a ULIP plan and found out the following charges being levied.

1) Premium allocation rate for the first year was 40%.(i.e. , if I invest 10000, only 4000 will be invested…guess what happens to Rs 6000 !!!.The premium allocation however gets better over a period of time)
2) Fund management charge. (Around 1% p.a)
3) Surrender charge for early surrenders.
4) Policy administration charges. (Rs 20 per month!!)
5) Mortality charges (for getting you insured)
6) Switching charge ( growth to balanced switch ,etc) Rs 100 for each extra switch
7) Partial withdrawal charge.
8) Revival charge (Rs 250)
9) Miscellaneous charge on top of it. ( charges for any alteration in the contract!!)

And nobody tells that the 40% plus return has been because of the phenomenal stock market performance and the same can’t be expected year on year.

The best thing is to have a term insurance policy for covering your life and invest through SIPs in mutual funds, if you want to get the benefit of equity (where the cost of investment is only the entry load and fund management cost, which may add up to 5% p.a on the higher end).
When a ULIP sales person calls you next time, be ready with the right questions.

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