Insurance
ULIPs ‘ke chaar sutra’: What they don’t want you to know

The insurance regulator has released an ad about ULIPs, which hides the reality of these products. ‘Promoting Insurance, Protecting Insured’ is the slogan of IRDA; it should read ‘Promoting ULIPs, Protecting Insurers’

The Insurance Regulatory and Development Authority (IRDA) has launched another series in its consumer awareness campaign 'Bima Bemisaal' which is being advertised in leading newspapers. It is supposed to help consumers, just like the last campaign urging consumers to contact IRDA by email or phone for any grievance.

We had readers mention lack of IRDA response to several complaints like Reliance HealthWise's unhealthy premium increase by 500%. (Reliance General Insurance's HealthWise Plan: It's time to act).

So much for IRDA's response to the insured.

IRDA's new campaign is on ULIPs, titled 'ULIPs ke chaar sutra'. It will leave you no wiser about the dark side of ULIPs.

Click here to see the advertisement

People have strange ideas about insurance and think that insurance is supposed to grow wealth rather than act as risk protection. And ULIPs are terrible as investment products.

ULIPs or traditional endowment/money-back plans (that combine insurance and savings) often leave the policyholder underinsured, as well as give pathetic returns on savings.

Why doesn't IRDA create awareness of insurance as pure risk protection rather than selectively highlighting some aspects of ULIPs?
Can we have an IRDA 'Term plan ke chaar sutra' too? How about 'chaar sutra' for the toxic Variable Insurance Plan (VIP) that LIC is heavily advertising after conveniently hiding information of astronomical charges?

IRDA banned Universal Life Policies (ULPs) and revamped them as Variable Insurance Plans (VIPs). LIC is the first to launch these instruments under the new norms and is currently heavily advertising about 6% guaranteed returns with no mention that the returns are after deduction of 27.5% charge in 1st year, 7.5% charge in 2nd and 3rd years and 5% every year thereafter. How did IRDA approve the full-page colour advertisements in leading newspapers and financial websites?

Here is what readers need to know about ULIPs beyond what IRDA is advertising.

  •  Chaar Surta mentions about finding the sum of total charges in ULIPs. It does not say that charges (premium allocation, policy administration) have just been spread over the years, instead of being high for the 1st year. Over a period of five or more years, new ULIP charges are more than old ULIPs. Read Moneylife cover story 'The New Old ULIPs').
  •  Chaar Sutra mentions about finding the exact surrender charges and that it is not in your interest to surrender the ULIP policy before it expires. The truth is that ULIPs can be surrendered without any penalty after five years. You don't have to wait till the end of policy term.
  •  Chaar Sutra mentions that the ULIP is a long-term instrument for risk protection. The reality is that a big chunk is still going towards investments. Any information about the performance of ULIPs from different insurers? Unlike mutual fund performance, ULIP performance is just not easily available. Can IRDA have guidelines for insurance companies to report ULIP performance?
  •   Highest net asset value (NAV) ULIPs deliver suboptimal performance and is not for someone interested in high exposure to equities. Can this be mentioned in the insurance policy document as well as advertisements? At a recent seminar, Dr P Nandagopal, managing director and chief executive officer, IndiaFirst Life Insurance, dubbed highest NAV ULIPs as having 'suboptimal performance'.
  •   The insurer will discontinue your policy if you fail to pay premium till policy term or premium payment term (if applicable for the plan). It means that if you were planning to pay only for five years and then do 'cover continuance' to keep your insurance cover and keep funds invested in equity/debt, then you don't have this option any more in new ULIPs. 'Cover continuance' was allowed in almost all old ULIPs after paying the mandatory three premiums. In new ULIPs, either you continue paying premium till the policy term or premium payment term, or your policy gets discontinued and funds reimbursed.
  •   Ticket size has increased tremendously to make it unaffordable for the average investor. A single premium ULIP has an even higher ticket size. The average investor will be shown the door to traditional plans-that is like pushing you from the frying plan into the fire.
  •   Single premium ULIPs offer poor insurance coverage. They do not quality for 80C tax savings unless the life cover is at least five times the premium. If it is less than the minimum, the amount that can be claimed under 80C for tax savings comes down appropriately. The maturity benefit of ULIP is tax free only if the life insurance cover was five times the premium. The Direct Taxes Code (DTC) will have major changes in current rules.
  •    Consumers need to be aware that there can be several charges in ULIPs like premium allocation charge, policy administration charge, investment guarantee charge, NAV guarantee charge, mortality charge, fund management charge, switching charge, surrender/discontinuance change, partial withdrawal charge and service charge.

So read between the lines of this advertisement before you bite the bait.

User

COMMENTS

Keshav B Bhat

6 years ago

Dear Mr Raj Pradhan,
Instead of all these critisism and mud slinging, why dont you give a model insurance plan designed by you you thing will fit for every ones need so that we can force the IRDA as well as insurars to take them in to considering while designing their products. Kindly note that if you are pointing at the problem it is better your version of solutions also
regards
Keshav B bhat

gracy

6 years ago

I have taken kotak smart advantage fund in the year 2008 almost 3 years have past as said in the ULIP ke chaar sutra "ULIPs can be surrendered without any penalty after five years. You don't have to wait till the end of policy term." I want to know if it is applicable for me too.

shankar

6 years ago

IRDA always thinks of Insurance Agents and Insurance Companies.So what is wrong in it.IRDA dont want to kill the Insurance Agents like Mutual Funds agents.Ok.Hats off to IRDA.Great work...

Paresh

6 years ago

Very nice article.

Manoja

6 years ago

From the various comments which have panned ULIPs, I can see two distinct patterns. One, people criticising ULIPs because they are missold. Two, people ciriticising ULIPs because of the charges factor in ULIP.

For the first criticism, I dont have an answer. How to stop misselling is something which IRDA should seriously give a thought to. But what they can do to start with is to discontinue the Bancassurance model of insurance selling. If the total complaints against the misselling of ULIPs are analysed, most of the complaints would be against the bancassurance model of insurance sales. Even national distributors like Bajaj Capital or India Infoline are not above board when it comes to misselling.

As regards the charges part of ULIP, my take is this.

There are multiple ULIPs in the market, each with its own cost structure. Each ULIP has its own unique selling points. There is no one size fits all scenario in ULIP.

In my interaction with various people across industry spectrums, one common thing I have noticed is sheer laziness on part of the investors to do a bit of homework. When one goes to ten different shops, comparing ten different brands when buying something like a televison or a music system, is it not worthwhile to spare a little time in understanding a bit about the product in which one is investing a large chunk of money? This will not only help them to understand whats and the whys of a product but also makes it difficult for anyone to missell a product.

Secondly, cost is only one part of the ULIP. One has to look out for other features of ULIPs. The maximum life cover a ULIP offers is the most crucial element in deciding which ULIP to buy. HDFC has a product which allows an investor to take 40 times the premium paid as insurance cover, Met life has a product which allows 20 times the premium as insurance cover and ICICI Pru has a product which allows 90 times the premium paid as insurance cover. Which one would you buy?

Three, in any financial planning article, one comes across a term called Asset Allocation. Equity investments have historically proved to provide the maximum returns across all investment products over a long period of time. Yet prudence demads that exposure to equity should be based on several parameters like an investor's age, risk profile, other investments he/she has already done etc. No one would advice to invest every possible paise in equity direclty.

ULIPs are one part of this asset allocation program. There is no rule that one has to invest in ULIPs alone disregarding all other investment products.


REPLY

kishore jagtiani

In Reply to Manoja 6 years ago

you are right, fault is on both sides. The agent should take a sample policy document & explain main points. insured is a blind layman groping in the dark without understanding a word, & becomes easy prey for extra ambitious or unscrupulous agents. Unfortunately in India there is no law or regulator or deterrent. I come from singapore & there people are SCARED as govt is merciless to wrong doers. I come from the family of chief insurance agents of Prudential - london since 1940.

Abhay

In Reply to Manoja 6 years ago

Sorry. A fourth factor. Its impossible to know how ULIPs have done for investors as an asset class.

Raj Pradhan

In Reply to Manoja 6 years ago

I don't know which ICICI pru ULIP you have that offers 90 times SA. I did not find one. Even if there were one, the customer is ultimately paying for it through increased mortality charges. The company is not giving anything for free. Higher SA also is subject to medical tests. Don't use this platform to push ICICI pru just because you are ICICI agent.

Manoja

In Reply to Raj Pradhan 6 years ago

I am not trying to push ICICI Pru products. I have not given my e mail, my phone number or any other contact detail on this forum. So no one knows where to contact me even if they want to buy a policy from me. Clear?

Kindly dig a little deeper, little harder. You will come across all the information I have given here by yourself.

Mortality charges are going to be high if one opts for a higher insurance cover, whether it is ULIP or term insurance premium. correct? Even if subject to medical test, it would be always advisable to go in for the maximum life cover possible in ULIP. Unlike others, I treat ULIP primarily as an insurance product with the returns generated from them as an additional feature, not the main one.

Jyoti

In Reply to Manoja 6 years ago

I am also not able to find 90 times cover of annual premium.In the brochure it is mentioned "AS PER MAXIMUM SUM ASSURED MULTIPLES] ULIPs category of policies are better as it offers a choice of plans to suit risk taking ability giving the control to maintain a balance between life cover and market returns.It insures life,creates wealth and protect health,

prudent investor

6 years ago

There is lot of mis-selling happening in ULIPS, One of the agent sold a ULIP to my father as an investment option.

REPLY

KESHAV B BHAT

In Reply to prudent investor 6 years ago

Dear sir,
My sympathies are with u and ur father.
Cold u please explain how your father went to buy the ULIP u r talking about with out discussing and enquiring about the product. Was the agent known to ur father or did he purchase from a door to door sales man or a walk in agent.
I think anybody want to purchase anyting say a TV asks it about from friends who are using the TV and tries to find out hou the perticular brand is performing before buying it.
The investment ur father wanted to make are the type of investment which is not a saing which some one wants make on a monthly basis so that after some time he or she will have some lumpsome amout for any need arises, so how he can take adecission on haste and sign the papers even without reading it.
Dont uthink these are the relavent questions u have to ask urself before telling the agents are cheats? it is up to u to ask ursef without any bias and u will get the answer. I am sorry if I have hurt ur feelings

Rakesh

In Reply to prudent investor 6 years ago

He should hold it for the "long term" :(

kishore

In Reply to prudent investor 6 years ago

lets form a group to make out a powerful case.

prudent

In Reply to prudent investor 6 years ago

My father is retired from service 2 yrs back

kishore

In Reply to prudent 6 years ago

lets get together unite & take them to task

kishore jagtiani

6 years ago

It should be made COMPULSORY for the agent to sell with taking the actual policy document & going through all the terms & conditions -- Their fine print that no one - (including me) ever reads. Economic offences wing, other regulators & consumer bodies Press & TV should be regularly pressurised to end malpractices. Most agents dont know their ass from their face & cannot even speak or write correctly. They make promises cheating the trusting client. Once you pay -- YOU ARE TOTALLY AT THEIR MERCY MAKE NO MISTAKE & THE COMPANY AND THE AGENT DONT CARE A DAMN FOR YOU.

REPLY

Keshav B Bhat

In Reply to kishore jagtiani 6 years ago

Mr Kishorejee,
Even if the policy document is produced before the buyer, do u think he or she will try to read it and understand the matters?
If he or she is really concerned first of veryfy the credibility of the advisor before taking the dicision of purchasing the policy.All these complaints if u investigate properly (in most of the cases) u will find the customer has brought on greed and not on planing his or her requirement but will not tell the facts and it easy to say somebody came and cheated me. kindly answer me why anybody will cheat u unless there is some weakness with u?

Surinder

6 years ago

In early Jan 2008, then bank manager of Centurian Bank of Punjab and a couple of Aviva reps deceatfully sold Aviva Life Saver Plus policy to one of my widow relative. She thought her money (15 lakhs) are being invested in a scheme where she will get a steady income of about 15k - 20k monthly to look after her 2 minor kid's educational and other household expenses. She trusted the bank manager as she has been banking at the same location for a number of years.

She was advised to sign the back page of the application and the rest formalities will be filled by them. She will commence to get her investment return in a month or so.

Not aware of the application contents, the annual premiums , the administration charges for ULIP, she was shocked to know that her annual premiums are 15 lakhs for the next 10 years on top of her initial 15 lakhs.

Making long story short, she paid a minimum premium of 15k annually for the next 3 years by borrowing from others and couln't make her 4th years premium in Jan 2011. In addition her investment is being depleted through various charges levied by Aviva as well as due to the the market fluctuation.
Needless to say that the bank mananger and others are no longer with the bank (HDFC) and Aviva customer service is playing to their own tune.

What can be done as this person is emotionally distraught and under a lot of financial crises.

Any lead would be much appreciated as I am trying to help this person.

REPLY

Raj Pradhan

In Reply to Surinder 6 years ago

She must have purchased old ULIP with lock-in of 3 years even if policy term says 10 years. As long as 3 annual premiums were paid, there is no need for 4th year premium to be paid. There may be some charges if she wants to discontinue the policy immediately. The old ULIPs normally don't have any penalty after 5 years. She should let the company know that she wants cover continuance to keep funds invested and life cover continued and wait till the period where there will be no penalty and then withdraw funds.

Moneylife offers free financial counselling through Disha. Anyone can meet counsellor in our Mumbai office after taking appointment.

MDT

In Reply to Surinder 6 years ago

Pls write to us on [email protected] or [email protected] or [email protected] or contact us at our Mumbai office. You will find our address and phone numbers in Contact Us.

kishore jagtiani

In Reply to Surinder 6 years ago

I am very sad to read of this tragedy. The punishment should be death. They have destroyed a persons life & made her undergo torture. They are inhuman. Contact the economic offences wing & consumer bodies & keep on writing about it EVERYWHERE including the press & TV.

Manoja

6 years ago

Shoot and Scoot. This seems to be the mantra of journalists who are not exposed to tough questions!!!

Making sweeping statements like New ULIPs are bad/agents are misselling the ULIPs etc., is ok. Backing it up with facts is another issue altogether. The way Sri Raj Pradhan ran away when presented with actual numbers in an actual case is a clear pointer that financial journalists are not comfortable in answering tough questions.

REPLY

Raj Pradhan

In Reply to Manoja 6 years ago

Your ignorance about ULIP is apparent with your statements like there will be no policy admin charges from 2nd year. You are also assuming no mortality charges after five years. I just don't have time to teach you basics of ULIPs here. It's obvious you don't read Moneylife. Even with cover continuance, policy admin and mortality charges are deducted by eating into your units. This news must be an eye opener for you. Instead of wasting time writing here, you need to go out and do your job of selling ULIPs by catching someone ignorant in finances.

Manoja

In Reply to Raj Pradhan 6 years ago

ICICI Pru Life Stage Wealth 2 is a product in which the cost structre is something like this:

First year: 2% admin charges + 0.47% monthly charges.

Second year thru fifth year : 0% admin charges + .47% monthly charges.

Sixth year onwards, the policy holder can opt for cover continuance option and stop paying the premium payment. No further charges will be deducted, either as admin charges or as monthly charges.

Please update your data base.

Two, I am not assuming that there would not be any mortality charges from the second year. Whatever calculations I have given is based on the deductions of mortality charges.

Three, do not make it personal by making unwarranted comments. The debate would be more meaningful if you too stick to facts.

Keshav b bhat

In Reply to Raj Pradhan 6 years ago

dear Mr pradhan,
if u have a case with facts against any agent please complain to the cocerned authorities and get the person punished but dont blame all agents, in your proffession al;so there are enough people doing wrong, are you responsible for it
Ulip products are not bad as you paint it but it should be taken after analising the requirement as the medicine is to be taken only after diognising the illness.

Ketan

In Reply to Keshav b bhat 6 years ago

Raj has not blamed anybody. It is Manoja who called journalists ideas weird.
By the way, complaining to IRDA is not easy and gets you nowhere. Try it

Manoja

6 years ago

While doing the cut and paste job from word to this website, the order of errors has gone a bit haywire, please bear with me.

REPLY

Jyoti

In Reply to Manoja 6 years ago

Manoja don't worry about errors.You have indeed raised very important points on ULIPs.While there is no doubt that there is room for improvement the media is obsessed with CHARGES only.Media will never expose disadvantages about traditional plans.This is an excellent product IF agents are adequately compensated,Life Insurance companies offer continues risk cover option[like previous avtar]more transparency like mutual funds and enough flexibility.Media is ignoring the fact that unlike mutual funds this is basically a ASSET ALLOCATION plan.IRDA should instead launch awareness campaign for traditional plans where there is 60% confusion and 40% commission

Raj Pradhan

In Reply to Jyoti 6 years ago

You have not been reading Moneylife which is clear from your comment that media will never expose disadvantages about traditional plans. Manoja will not like your comment as he must be keen to sell traditional plans and earn hefty commission.

Jyoti

In Reply to Raj Pradhan 6 years ago

Mr Raj Pradhan please enlighten me on following:
1] What are mortality charges in traditional plans?
2] What are fund management and other policy servicing charges in traditional plans?
3] Are surrender charges in traditional plans less than ULIPs ?
4] How Bonus is calculated by different companies?
5] What is the percentage of lapsed policies in traditional plans?
6] Does traditional plans help in wealth creation and adequate life cover?
7] Does traditional plan offer liquidity?
I like Moneylife and admire its editorial team for unbiased coverage.I would kindly request you to give your comments without fear of losing ads from LIC.
As Manoja has rightly pointed out that ULIPs have to be looked as long term investments and media should not constantly highlight on deficiencies of ULIPs.

Manoja

6 years ago

Error 5: Again a case of nitpicking than stating a fact.

“Chaar Sutra mentions that the ULIP is a long-term instrument for risk protection. The reality is that a big chunk is still going towards investments.Any information about the performance of ULIPs from different insurers? Unlike mutual fund performance, ULIP performance is just not easily available. Can IRDA have guidelines for insurance companies to report ULIP performance?”

ET and Business Standards publish the NAV of ULIP funds on a daily basis along with the MF NAVs. As far as I know, ICICI Pru website has NAV information updated on a daily basis. It also provides historical values of the NAV from the time of inception of a ULIP. I am sure, other insurance companies will also have a similar facility on their website. Can the columnist be little more specific as to what he wants the IRDA to do?? Also, out of sheer curiosity I am asking this. Does SEBI have guidelines for Mutual Fund houses to report fund performances? Does RBI stipulate banks to give out interest rates on various loans as compared to other banks?

Error 6:

Cover continuance option exists even now. ICICI Prulife has a ULIP called LIFE STAGE WEALTH 2. Under this plan, one has to pay the premium for a min period of 5 years and then opt for a cover continuance option to cover the next 25 years. Therefore the contention of the columnist that there are no ULIPs with cover continuance option is totally incorrect. Little more diligent research perhaps would have revealed this fact. Or is it a case of suppressing good things to highlight the bad?

Error 7:

Not only the single premium policies, even in the regular ULIPs if the sum insured is less than 5 times the premium paid, benefit under Sec 80 C is not available. Also the maturity benefits will cease to be tax free.

REPLY

Raj Pradhan

In Reply to Manoja 6 years ago

Error 5: NAV in ULIP is not an absolute indication of how much money your investments have made. The units allocated to you are net of premium allocation charges and policy administration charges are deducted every month. E.g. If Rs10000 was premium paid. if 1st year charge was 20%, only Rs8000 is invested (asssume zero mortality). If NAV was 100, then you get alloted 80 units. In this 80 units, policy admin charge is deducted every month. If it is 2.5% p.a. then after 3 years, you are left with 74 units. If NAV moves to 120 in 3 years. Your fund value is Rs8880. So, NAV increased by 20% in 3 years, but your fund value increased by 11.1% in 3 years. GOT IT?

Error 6: I don't know where you read there is no ULIP with cover continuance option. Read the article again. It says in new ULIPs continue paying premium till the policy term or premium payment term, or your policy gets discontinued and funds reimbursed. Premium payment term (PPT) is backdoor cover continuance. It is not available in most of new ULIPs. Few have started it. If you can buy and read latest Moneylife magazine, you can read in detail about it. Keep reading Moneylife!

Error 7: Regular premium ULIPs have less to worry because the minimum SA is 7 times in most cases. Single premium ULIPs have minimum of 1.25 times and can lead to problem while getting tax benefit. Is that ok Manoja?

Raj Pradhan

In Reply to Raj Pradhan 6 years ago

Error 5: I forgot to say that the real returns in my example is NEGATIVE in 3 years. Invested money Rs10000 (mortality charge was assumed to be zero even though its not possible). The fund value after 3 years Rs8880 even when NAV increased by 20%. You can see how NAV in ULIPs can be misleading. Do i need to say more to educate you Manoja?

Manoja

In Reply to Raj Pradhan 6 years ago

Do not compare apples and oranges. In your explanation to Error 5, you have precisely done that.

Let me tell you why. Here is a scenario. In the example I gave you, my client has paid Rs.50,000/- and has taken a life cover of Rs.27,50,000/-. Term plan premium for the same amount for his age in LIC Amulya Jeevan is Rs.8,925/- per annum if he takes it for a period of 30 years.

The admin charges in this plan for the first year is 2%. Plus there is a monthly charge of 0.47% which works out to about 5.64% per annum. Therefore the total charges deducted from the premium would be 7.64%. This translates to Rs.3,820/- in the first year. From the second year thru the fifth year, the period for which he is paying the premium , the charges would remain at 5.64% per annum. Which means every year Rs.2,820/- will be deducted from the premium paid. The mortality charge for a 30 year old person for a sum of Rs.25,00,000/- works out approx Rs.3,500/-. Giving you the benefit of doubt, let us take it at a round figure of Rs.4,000/-.

Now do the Maths. First year, admin charges + monthly charges + mortality charges = Rs.7,820/-. Which means out of Rs.50,000/- he has paid as premium, Rs.42,180/- is going towards the investment. From second year onwards this will increase by 2% since admin charges are not levied. However, in the term plan scenario, this is not the case. If my client had Rs.50,000/- and he pays Rs.8,925/- towards the term insurance premium, the money available for investment is only Rs.41,075/-. And this will remain the same for the next five years.

After five years, the cover continuance option kicks in. Which means my client need not pay the premium towards his ULIP plan. He can take out the entire amount of Rs.50,000/-and invest it in any mutual fund he chooses or directly in the market. Sadly, in the term plan scenario, the money available for investment continues to be Rs.41,075/- since the premium has to be paid for the next thirty years!

The best part of ULIP is yet to come. In case this person who has taken term plan, for some reason, forgets to make his premium payment on the due date and the payment does not happen even in the grace period allowed by the insurers and dies, what happens? The insurance companies obviously state that there is no liability on them to pay the insured amount since the policy is in lapsed state. Correct? So what should his/her family do? In case of ULIPs, since the cover continuance option is available, after five years, the person is covered till the term he has chosen. No hassles of making repeated premium payment!

And your response to Error 6.

I hope you read what you write. Here I quote verbatim from the article posted above:

"The insurer will discontinue your policy if you fail to pay premium till policy term or premium payment term (if applicable for the plan). It means that if you were planning to pay only for five years and then do 'cover continuance' to keep your insurance cover and keep funds invested in equity/debt, then you don't have this option any more in new ULIPs. 'Cover continuance' was allowed in almost all old ULIPs after paying the mandatory three premiums. In new ULIPs, either you continue paying premium till the policy term or premium payment term, or your policy gets discontinued and funds reimbursed."

Kindly read the above paragraph very carefully. Every line of this is littered with false and incorrect statements. Let me tell you why.

1. Even the old ULIPs had a minimum term of premium payment. It was three earlier and now it has been increased to five.

2. When one buys an insurance policy, it is implicit that he/she has to pay the premiums to keep the policy intact. And insurer will certainly discontinue the policy in case premiums are not paid. Do you think an insurance company is running a charity program where they keep all the policies alive even when there is a non payment of premium?

3. New ULIPs have the cover continuance option. ICICI Pru has one.

4. Your last line of this paragraph takes the cake!! Even in the “OLD” ULIPs one had to pay mandatorily for three years. If not, the policy would get discontinued. So what is different in the new ULIP except that from three years, the minimum period of payment has now been increased to five??

Manoja

6 years ago

Error 3:
"Advertisement not saying that the charges are being spread over the years"

If I remember correctly, we had a bunch of people who got completely agitated because Insurance companies charged higher admin charges in the first year as compared to the later years. Now we have a situation where the costs have been spread over a period of years. This was done to address the concern expressed by this bunch. What more needs to be done??

Error 4:

I would call this more a ridiculous nitpicking than an error.

“Chaar Sutra mentions about finding the exact surrender charges and that it is not in your interest to surrender the ULIP policy before it expires. The truth is that ULIPs can be surrendered without any penalty after five years. You don't have to wait till the end of policy term.”

The first “sutra” as given by IRDA very clearly mentions that one can’t surrender the policy within the first five years. The fourth “sutra” asks the customers to find out the exact percentage of surrender charges from each insurer before buying the policy. What is the crime committed by IRDA in putting this in the advertisement?
Also, read what the columnist says “The truth is that ULIPs can be surrendered without any penalty after five years. You don't have to wait till the end of policy term.” Is this a sane advice?
Earlier, this was precisely the grouse people had against the advisors. Of advising people to take out the money after the mandatory period of three years are over. I also remember quite a number of articles slamming this approach by the advisors, rightly so. ULIPs will work to the policyholder’s advantage when it is treated as a long term financial product. It is with this intention IRDA has increased the surrender period from three to five years. Instead of appreciating this move by IRDA, I wonder what is the motive in finding fault with this?

REPLY

Raj Pradhan

In Reply to Manoja 6 years ago

Error 3: If you are happy with just spread of 1st year charges over years, then you can buy ULIP. If you read our cover story, even after the just spreading of charges, the total charges for new ULIP in 5 years or more is greater than total charges for old ULIP for same period.

Error 4: The comment was just a clarification to the IRDA statment 'It is not in your interest to surrender the ULIP policy before it expires'. It gives missing piece not mentioned 'ULIPs can be surrendered without any penalty after five years'. If you have some problem with it, so be it.

Manoja

6 years ago

As an insurance advisor, in the industry since the last ten years, bad press on ULIPs has ceased to surprise me. Out of sheer boredom, I had stopped commenting on some of the eminently stupid articles written to trash ULIPs. However this article really takes the cake. It drove me out of my boredom to post something here hoping that some sense would prevail on people who write such articles and people who read & pass comments. So here it goes.

This write up has lot many incorrect and inconsistent statements. Let me start with this gem:

Error No 1:
" People have strange ideas about insurance and think that insurance is supposed to grow wealth rather than act as risk protection. And ULIPs are terrible as investment products."

No Sir, people do not have this strange idea. Rather it is journalists like you who have this weird notion that insurance as a whole is bad for investments and ULIPs in particular are worst of the lot. Here is why.
One of the earliest ULIPs to have come in the market was ICICI Pru’s Lifetime. On 2nd of Nov 2001 the NAV in the all equity investment option was Rs.10. As of date the NAV of this fund is Rs.66.11. This translates to an average growth rate of about 23% from its inception.
I also checked the average returns of top ten performing mutual funds in the Large & Mid Cap sector, from their inception date till now, on Valueresearch online’s website. And guess what? The average return was about 26.375%.
If, mutual funds, whose very existence is to maximize the wealth of the investors, generate an average return of 26.38%, would you call a product which has given a return of 23% bad? More so when the main purpose of this investment vehicle is to protect the life rather than grow the wealth???

Error No 2:

"ULIPs or traditional endowment/money-back plans (that combine insurance and savings) often leave the policyholder underinsured, as well as give pathetic returns on savings."

There are two parts to this statement. One, under insurance part. Two, pathetic return part.

While traditional plans do have some kind of disadvantage when it comes to upping the insurance quotient, ULIPs are perhaps the best avenue to maximize the insurance component. I don’t know whether the author knows this. Every ULIP plan comes with two options, min life cover and max life cover, for each age group. For instance, in the same ICICI Pru Lifetime earlier, a person had an option of getting 150 times of the premium he/she paid as insurance cover. Just to put this in perspective, a person paying a premium of Rs.50,000/- could have availed a benefit of Rs.75,00,000/- on the higher side. By what yardstick is this low? Now of course this product has been discontinued. But there are products today which still offer an insurance cover ranging from 90 times to 7 times, depending on the age of the person. In other words, a 30 year old person, by paying a premium of Rs. 50,000 can avail a life insurance cover of Rs.45,00,000/-. Did someone say small??

As far as the returns part is concerned, how can you consider a product as a bad investment product when the average return it has generated from its inception till date is about 23%? What is a good investment product then? Something which doubles the money overnight??

REPLY

kishore jagtiani

In Reply to Manoja 6 years ago

Would like Manoja to contact me on my e mail. There are many doubts & queries of mine that I want to discuss to understand ULIPS, & whether is it a good thing to take & why

Abhay

In Reply to Manoja 6 years ago

Dear Manoja,
You make a very valid point about ICICI Pru returns. I would like to ask one thing. You say, "I also checked the average returns of top ten performing mutual funds in the Large & Mid Cap sector, from their inception date till now, on Valueresearch online’s website. And guess what? The average return was about 26.375%."
Is there any way we can know the "average returns of top ten performing" ULIPs ? Or for that matter "average returns of worst ten ULIPs" exactly the way we can easily know about the worst performing MFs (which Moneylife also writes about, unlike other media)

Manoja

In Reply to Abhay 6 years ago

Abhay,

I am not aware of any website or publication which tracks the ULIPs. May be Money Life will start one soon??!!!

Abhay

In Reply to Manoja 6 years ago

"I am not aware of any website or publication which tracks the ULIPs."
Precisely.
Here are some lessons for you:
1. Dont give selective example. For one ICICI Pru, there are many which have lost capital
2. The best way to compare is over the long term, average returns, median returns. Its possible to calculate these for mutual funds and stocks, not for ULIPs
3. When someone asks you "how much will I get from my ULIP investment" please dont be dishonest and give a selective example. Say "I dont know know" because "I am not aware of any website or publication which tracks the ULIPs."

Kanojia

In Reply to Manoja 6 years ago

Hey Manoja....cool man. Just because you are an agent does not qualify you advise people about insurance. First understand the difference between insurance and investment. Investment is more useful for me during my lifetime, while insurance takes care of my beloved in case if I am not there. This is what common people like me understands, but you does not want to. Is it due to your not being 'busy' enough as people may have been avoiding you and hence the boredom...Am I correct? STOP fooling people with technical jargons and longggggggggggggggg comments.

Raj Pradhan

In Reply to Manoja 6 years ago

Error 1: You are wrong, Manoja. We journalist don't have weird notion about ULIP. We just like to give truth. If you don't like it, so be it. My answer to Error 5 will educate you on how NAV in ULIP work. It is not an indication of how much money your invesment made. The investment portion of equity in ULIP is bound to grow if markets do well. When market went down by 50%, so did ULIPs and vice-versa. Is that clear Manoja?

Error 2: I did not find 150 times in ICICI pru lifetime brochure. Show me a new ULIP that is offering more than 40 times SA. It means that one has to pay premium of Rs1,25,000 to get cover of Rs50 lakhs (needed for someone earning 5 lakhs p.a). The same term plan will cost Rs5000. The balance can be invested in other investment options. Relax Manoja. Did i say anything about double money overnight?

manoja

In Reply to Raj Pradhan 6 years ago

On Monday, I logged in a policy in ICICI Prulife for a client. The premium paid was Rs.50,000/- and the life cover taken is Rs.27,50,000/-. This is 55 times the premium he has paid. This is under the new ULIP regulations. In its earlier avatar, the LIFETIME plan by ICICI Pru was perhaps the best ULIP ever available in the insurance domain. With 150 times life cover, there are a number of clients who had paid a premium of Rs.30,000/- per year and had opted for a life cover of Rs.45,00,000/-. But like I said, it is discontinued now for reasons best known to ICICI Pru.

When the market goes down, dont the NAVs of the mutual fund units go down as well? Or do mutual fund managers invest in a market which is completely different to the one in which the fund managers of ULIP invest? The last I checked, both of them invest in the stocks quoted in NSE and BSE.

Raj Pradhan

In Reply to manoja 6 years ago

Thanks for disclosing your information as being insurance agent/distributor or what ever. It shows your bias for ULIPs. You still have not given the plan name for ICICI new ULIP with 55 times SA.

When did i say mutual funds NAV don't go up or down with market? You seem to be putting words in my mouth for unknown reason. Read the article and my comment again. There is nothing more i can do to help you.

KESHAV B Bhat

6 years ago

Dear Sir,
It is sad people like you want popularity by basing against something and saying what u want, ask yourself how u earn your living making use of others weakness, that is maximum no of people want quick money without any hard work. Such people want every body to give them best services but dont want to pay for it as they think if do not pay for the services u save mony and that money will increase your wealth. Honestly tell me how many people you pay the worth of the services u received for the services u received from them? it will answer all your quarries u have in this field. If you are really interested in the welfare of the investors, first educate them that every one here is trying to earn their living and pay reasonably for the services you receive, deal with only people u can trust, sbe ambitios but dont be greedy. if u find some body is doing wrong dont complaint the right authorities as it will make the wrong doers to think twice before doing wrong, if u see somebody is doing wrong and keep mum u yorself are encoraging the bad practices then why complain about wrong doings in the meadia, is it to get cheap publicity?

REPLY

Bhavesh Damania

In Reply to KESHAV B Bhat 6 years ago

Dear Mr. Bhat, I think your point is to not expose ULIP much as it affects living of many people including YOU ??

If i assume it so than pl bear in mind-1) how do you feel when u r sold a ULIP or VIP ?
2) If person has to sell ULIP to earn living than what stops him i) give full picture of charges/features etc??? ii) to hunt for another suitable business??
3) Competitive world warrant all to be adaptive to change

Keshav B Bhat

In Reply to Bhavesh Damania 6 years ago

Dear Mr bhavesh,
sorry to say that it is eassy to point fingers at others but dont forget there t5hree fingers pointing at u.
As you said it is the duety of any seller to disclose all facts, but dont you think it is eqally applies to the buyer. nobody prevents the buyer to seek all the information he or she wants to seek. kindly tell me when your child or family member is sick do you wait some body to giveyou information or do you try to seek all information by consulting a doctor and doing all the tests he or she tells without making any bargain with the doctors fee or test expances, then why this hue and cry when it comes to your personal finance. Do u think all the financial products are bad and all advisors are cheats. If you are thinking so dont deal with them as you dont require them. people like you are only come under the catogory I meet daily in local trains who donot have any other topic other than stock market but in reality dont invest in stocks.
In Idia people are not in the habit of paying for the services they receive so it is beter the payment for the services to be included in the product cost as the seller too has to servive and if you dont like it you have the choice of not buying it. Even a person has to spend money on travel etc to go to work and mode of travel etc he or she decides on the convenience and affordability of individual.

I can only say that dont buy a product because somebody came to sell it, only buy if you need it and it suits to you. why u have to think how much the seller gains? it is his or her bussiness to earn hes or her living. If you find they are doing any thing wrong complain to the concerned authorities but dont get jelous of their earnings as they work for it as you work to earn your earings.
Regards

Dinipc

6 years ago

IRDA is a criminal body that working for the interests of the Insurance company and the scrupulous sales agents.

It is time for IRDA to wrap up and let SEBI regulate ULIPs.

REPLY

kishore jagtiani

In Reply to Dinipc 6 years ago

Pls contact me, am confused about Ulips & need some clarity to take some decisions

Rakesh

In Reply to Dinipc 6 years ago

Oh please! This is not about Sebi and IRDA. For customers all regulators are the same. Buyers beware. There is no one to protect you when most of the media is sucking up to vested interests

Dinipc

In Reply to Rakesh 6 years ago

Didn't SEBI remove entry load of 2.25% from all Mutual Fund investments? How much is 2.25 compared to 15% as entry load, that ULIPs are allowed to have?

Oh please, spare us your "Sab Chor Hain" nonsense. You may live with that negative attitude all your life, but please, oh please, spare us!

Manoja

In Reply to Dinipc 6 years ago

Dinipc,

Are you employed somewhere? If yes, are you working free of cost? If no, how does your employer recover your salary cost?

Isn't salary paid to employees a part of the costs to arrive at the pricing of a product? If the salary cost is taken out completely, dont you think, I as an end user, will stand to gain by the reduced price of that product? So are you okay if a company does not pay a fixed salary to its employees but bases the salary component on the amount of sales it does and satisfaction index arrived at for its products by its end users??

Kindly answer this question and you will realise why mutual fund and insurance advisors need to be paid from the fund houses/insurance companies.

Delhi court extends CBI custody for Raja, Balwa

The CBI, in its plea for extension of the remand, said the duo needed to be confronted with some more documents recovered by the investigating agency

New Delhi: Former telecom minister A Raja was today sent to Central Bureau of Investigation (CBI) remand for three more days by a Delhi court which also extended the custody of Swan Telecom promoter Shahid Usman Balwa for four days in the 2G spectrum case after the CBI said it wanted to confront them on the money trail, reports PTI.

"Considering the enormity of crime, complex and complicated nature of the investigation, voluminous documents involved in the case, I find that the prayer for further custodial interrogation of the accused persons is justified," special CBI judge OP Saini said.

During the hearing on its plea for extension of the remand for Mr Raja and Mr Balwa, the CBI said the duo needed to be confronted with some more documents recovered by the investigating agency.

"They (Mr Raja and Mr Balwa) are further required to be put under sustained custodial interrogation and confronted with each other on the trail of money as well as with other suspects and witnesses so that the real facts and elements of criminal conspiracy including omission and commission committed in this case, can be unearthed and taken to light." the CBI said in its remand application.

The CBI initially had sought only two days" custody for Mr Raja but the court remanded him in the agency's custody for three more days after the former minister's counsel pointed out to the judge that it will be a national holiday on account of Milad-un-Nabi on February 16 and Mr Raja may remain in custody for an additional day.

Opposing the CBI's plea for extension of Mr Balwa's custody, his counsel Vijay Aggarwal contended before the court that his client was merely engaged in bonafide commercial transactions and had not violated any law.

"The CBI has not put forward any specific evidence (of Balwa's criminal culpability) for seeking extension of his remand and has made only a general statement without any substance," Mr Aggarwal said.

The CBI, however, pointed out to the court that the agency has added two more sections of the Indian Penal Code relating to cheating and forgery in the case against the accused.

"While investigation is in progress, things are coming to light and so sections 420 (cheating) and 468 (forgery) of IPC have been added," senior public prosecutor Akhilesh, appearing for the CBI, said.

While seeking extension of the custody, the CBI said the case was "complicated and highly technical".

"It is an important case. Vastness of the documents and ramifications of this case are much wider and so we need further custodial interrogation of the accused," the CBI said.

With the court remanding Mr Raja to three more days of CBI's custody, the former minister will be completing the maximum number of 14 days for which any investigating agency can keep an accused in its custody for questioning.

After spending 14 days in the custody of any investigating agency, the accused is sent to judicial custody.

Mr Raja was arrested on 2nd February and remanded in CBI custody initially for five days. On 8th February, he was again remanded in CBI custody for two more days after the agency told the court that he was not cooperating during questioning and was being evasive.

The former minister's custody was again extended by two more days on 10th February on a CBI plea.

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Sensex, Nifty rally, but several hurdles lie ahead: Monday Closing Report

The Nifty has to cross 5,555 and the Sensex 18,500 for the rally to continue

Adding to the gains that accrued on Friday, the market started the day today on a strong note, tracking its Asian peers, which were trading higher as tensions eased in the Middle East. Auto, metal, banking and realty counters witnessed demand in early trade. Inching northwards in morning trade, the market got a leg-up following the marginal easing of the wholesale price index (WPI) inflation for January.

The key indices were range-bound in afternoon trade, but buying support propelled them upwards, ensuring a close near the day's highs.

As we suspected on Friday, the market ended with solid gains today. The Sensex was up 474 points at 18,202 and the Nifty ended 146 points higher at 5,456. This is the second highest daily gain on the Sensex (2.67%) and the Nifty (2.75%) since 11 May 2010.

The Nifty opened with an upward bias of 30 points at 5,340. The Sensex and the Nifty both made new six-day intra-day highs (starting 7 February 2011) at 18,228 and 5,464 respectively. The Nifty was able to break the resistance of 5,370. It managed to cross the 10-day moving average, as well, confirming a short-term uptrend.

Above this level, the market has to cross many hurdles to be in the bull market orbit again. Nifty faces resistance at 5,480 and 5,555. If these levels are crossed in the next three days, the market will move up substantially towards 5,700 and 5,800. The advance-decline ratio on the National Stock Exchange was 1529:220.

The market breadth on the Sensex and Nifty was tilted towards the gainers. The Sensex closed with 29 stocks in the green against one in the declining list. The Nifty returned with 47 advancing stocks and three stocks in the negative list. The broader indices outperformed the Sensex today. The BSE Mid-cap index surged 3.52% while the BSE Small-cap index jumped 3.94%.

All sectoral gauges closed higher with the BSE Capital Goods index (up 5.26%) leading the gainers. This was followed by BSE Auto (up 3.79%), BSE Metal (up 3.53%), BSE Consumer Durables (up 3.40%) and BSE Bankex (up 3.37%).

Jaiprakash Associates (up 6.79%), Larsen & Toubro (up 6.70%), Tata Motors (up 5.60%), BHEL (up 4.56%) and Jindal Steel (up 4.44%) were the major gainers in the Sensex list. On the flip side, DLF (down 0.38%) was the lone loser.

The wholesale price index (WPI) based inflation declined marginally to 8.23% in January from 8.43% in the previous month, it was announced today. Prices of certain commodities like wheat, pulses and sugar are reported to have eased, but essential items like onions and other vegetables continued to be dear. The headline inflation based on wholesale prices has remained above the 8% mark since January last year.

Even though inflation has eased marginally from December, the Reserve Bank of India is likely to take further policy-tightening steps in its monetary review due next month.

Markets in Asia ended in the green on a less-than-expected decline in Japan's gross domestic product for the December quarter and easing of tensions in the Middle East. Chinese shares extended gains after the customs bureau said that January exports rose 38% from a year earlier, while imports surged by 51%, pointing to a rise in economic activity in the second largest economy.

The Shanghai Composite jumped 2.52%, the Hang Seng advanced 1.28%, the Jakarta Composite rose 0.74%, the KLSE Composite gained 0.72%, the Nikkei 225 was up 1.13%, the Straits Times gained 0.88%, the Seoul Composite surged 1.89% and the Taiwan Weighted ended 0.88% higher today.

Back home, foreign institutional investors were net sellers on Friday, offloading stocks worth Rs537.71 crore. On the other hand, domestic institutional investors were net buyers, purchasing equities worth Rs519.67 crore.

Coal minister Sriprakash Jaiswal today said Coal India (CIL) (down 0.51%) will set up 20 new washeries with a combined capacity of 111 million tonnes to help realise a better price for its produce.

CIL currently operates 17 coal washeries, out of which 11 are coking coal and the remaining are non-coking coal washeries, with a total capacity of 39.40 million tonnes per annum.

Rain Commodities (up 4.25%) has taken over Birla Cement & Industries from the Yash Birla Group. As a result of this acquisition, Birla Cement & Industries has become a wholly-owned subsidiary of the company. Birla Cement holds certain limestone mining leases in Andhra Pradesh.

Indian Overseas Bank (up 5.35%) is looking to enter the African market for which it has initiated the process. The bank is also planning to convert its representative offices in Dubai and Guangzhou in China into full service branches, as part of its efforts to expand its foreign operations.

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