ULIPS , Who need them , who don’t !!!

What are ULIPS ?

ULIPS are investment cum insurance products , You take an insurance worth XYZ amount and then you pay some premium every year . Out of your premiums some amount is cut as administrative expenses (Premium allocation) and out of rest the mortality charges are cut for your insurance and the rest is invested in market linked things.

Some points to note here are :

1. You decide the tenure of your Insurance and the insurance amount , depending on which mortality charges are cut from your premium you pay.

2. The Premium allocation charges are very high in initial years (especially 1st year) and then reduces in later years. That’s the reason one should be invested in ULIP for long period to get maximum benefit.

3. The money actually invested is invested as per your directions … ULIPS have different plans with different risk-return profile. One plan may have allocation of 80-20 to equity and debt , some other can have 50-50 and some can have 20-80 and like this.

4. The investor can switch between the investment style as and when he wants (max 4 free switches in most of the cases , there after some nominal fees).

5. ULIPS have sec 80C benefit, minimum of 3 premiums has to be paid.

6. ULIPS must be considered for long term investment products, so that the high cost in initial years are averaged out over longer period.

Advantages

- The switching over different styles is not costly , you are not charged when you switch , which make them flexible.

- ULIPS are innovative products and suits people who want long term wealth creation with some insurance too..

Disadvantages

- They are not good product for people who require high cover and can pay less cover, because premium depends on the cover. Higher the cover , higher the premium. So these people must take term insurance for there life insurance.

- For people investing only for tax benefit must avoid them as they will prove to be costly in short term because of there high allocation charges.

ULIPS have become very popular in last some years as agents have put there life and souls in advertising them and making people believe that they are wonderful product. Every product is wonderful for some or the other. If you can take good risk , need less insurance and closely want to monitor markets and economy so that you can switch your investments from one plan to other , ULIPS are great for you … else they are not..

Evaluate yourself and dive

I would be happy to read your comments or disagreement on any topic. Please leave a comment.

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