The Unit Linked Insurance Plans or ULIPS is a product of perspectives. Insurance agents tout its tax saving & in-built insurance benefits often at the expense of playing down the impact of charges. On the contrary, financial planners & mutual fund distributors explain the charge structures which is often an older version of the current day ULIP. In this video, ETMONEY’s Shankar Nath looks to set the record right and get you the truth about ULIPS.
What’s covered in this video?
00:00 Introduction
01:20 What is a ULIP?
03:27 Mortality Charges
07:45 Other Charges
12:13 Investment
14:26 ETMONEY Opinion
👉 WHAT IS A ULIP
A ULIP is an investment-cum-insurance product which offers many tax benefits and it is this triple benefit that forms a formidable story that insurance agents pitch to prospective policyholders.
The understanding of the product construct is most important in case of a ULIP which includes three parts:
1. Insurance
2. Charges
3. Investments
👉 MORTALITY CHARGES
The insurance cover offered in a ULIP is generally 10 times of the premium paid to take advantage of Section 10(10D) rules
In the video, we show how mortality charges work by taking the example of a 36 year old non smoker male who is looking to invest a 1 lakh of rupees every year in a ULIP. Our research also shows that as a general principle the mortality charge kept on reducing every year and at one point it actually turns to zero.
👉 OTHER CHARGES
In addition to mortality charges and fund management charges (both are essential charges), a ULIP might also has many other charges like -
- Premium allocation charge
- Policy administration charge
- Fund switching charge
- Partial withdrawal charge
- Discontinuance charge
- Surrender charge
In the video, we also go on to illustrate how the charge structure has changed from the pre-2010 days (when charges were very high) to present day charge structures (which are much lower). For this we examines four plans - ICICI Prudential Lifetime Plus, ICICI Prudential Signature, HDFC Standard Life Unit Linked Endowment Winner and HDFC Life Click2Wealth
👉 INVESTMENT
The money that goes into your investment bucket is the net of all charges that we have discussed in the previous two sections of this video. ULIPs operate a lot like mutual funds with professional management teams, issuance of units, daily NAV, monthly fund statement, multiple fund options etc.
When put together the last 5 year performance of ULIPs and mutual funds across a few popular categories we found that the performance of a ULIP is quite comparable to mutual funds.
The real issues with the investment bucket are again related to the construct of ULIPS on account of a) money that goes towards investment is lower than the premium paid due to charge and b) there is no porting feature if you are not satisfied with the fund performance
👉 ETMONEY OPINION
With ULIP, the goal-fitment part that always seems to be a bother.
Further, in the video, we went on to explain that the difference of 1.25% (i.e. 1% charge on direct mutual funds and 2.25% charge on ULIP) over a 10 year period can completely eliminate the capital gain tax advantage that the insurance industry pitches when positioning ULIP over mutual funds
ETMONEY have been great supporters of insurance plans and continue to assist tens of thousands of our investors with the ideal term insurance plan through our platform. However, a combination of product complexity, undefined goal fitment, compounding losses and a general lack of options in terms of asset classes and funds have dissuaded us from having ULIP products on our platform.
Products and supporting used in this video:
► ICICI Prudential Lifetime Plus - [ Ссылка ]
► ICICI Prudential Signature - [ Ссылка ]
► HDFC Unit Linked Endowment Winner - [ Ссылка ]?
[ Ссылка ]
► HDFC Click2Wealth - [ Ссылка ]
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