Low-Down on ULIPs

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How Things Could Have Been Better?


Mr. Singh could have been told that Rs 20,000 was the minimum premium payable and given that he had about Rs 3 lakh to invest the balance Rs. 2.8 lakh could have been deployed into the policy as a top-up.

On the basis of this arrangement, he would be charged 20%
on his annual premium of Rs 20,000 i.e. Rs 4,000 and
1% on his top-up of Rs 2.8 lakh i.e. Rs. 2800.
The total charges in this case would have been Rs 6,800.

Against this, he was charged Rs 54,000 because the entire amount was taken to be his premium instead of splitting the amount as premium of Rs 20,000 and top-up of Rs 2.8 lakh.

Mr. Singh would have saved Rs. 47,200 (i.e. difference between Rs.
54,000 and Rs. 6,800). If Mr. Singh then invested this Rs. 47,200 for
28 years i.e. upto his age of retirement and if he earned say 15%
returns (as he is an equity investor) he would have gained a wealth of
Rs. 24 lakh approximately.

Now if you are the proud owner of a ULIP – go back and check the
premium you pay and find out the minimum premium that is payable for
your policy. If your advisor tells you that you have done the right
thing and that you just need to pay the premium for three years so on
and so forth – be warned your charges are very high, the stock markets
may crash – your policy can become worthless and because you will not
pay the premiums post three years the policy can also lapse in years to
come. Three years of premium payment is a marketing tool for advisors
to entice you to commit for just three years and they laugh all the way
to the bank. It is far better to pay the minimum premium for a minimum
of three years and ideally pay it for about 10-15 years – thereafter
chances are that you will not need to worry with respect to your
insurance benefit.

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