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.
So read between the lines of this advertisement before you bite the bait.
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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
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.
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.
The age band and the number of times the life cover allowed is given below:
0-25 90 times
26-30 70 times
31-35 55 times
36-40 35 times
41-55 20 times
46-55 10 times
> 55 7 times
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
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?
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.
Moneylife offers free financial counselling through Disha. Anyone can meet counsellor in our Mumbai office after taking appointment.
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.
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.
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.
By the way, complaining to IRDA is not easy and gets you nowhere. Try it
It only shows that you want to be in the lime light but dont want the problems to be solved.
U see a lot of people complaining about problems of settlement when you go through the case papers u will find that people submit the papers with wrong details. You will find the paprs not matching like differant names but instead of correcting themand submitting proprly they go on blaming that theeir casas are not getting settled and hearing that others who do not have any work and have the habit of making noice with out varification start saying the companies are not settling the claim.
It is easy to blame others but varyfying and doing the right things requires patiance and time.
Today only I had some one calling me for some investment advise after eating up my brains for half an hour the person has already decided on some product and wanted to invest on that product only. I just refused to do his work as according to me the product he selected was too risky for the purpose he wanted to invest. there may be people who say that since he himsef has selected the product why I shold worry just do the work and take the fee or service charges. Later on once he looses mony he will say( like you people blame all agents) to others the agent made him to invest and he lost the money. and it will be a big and masaledar news for the journalists
Thanks for your compliments. If u wish u can contact me on 9820990209 or mail me on [email protected] or [email protected]. Kindly note that i do not take anyones advisory work till I know the person well as I am in this proffession not to just earn money but in the process I want the person who takes my advise should benefit from it.
Regards
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.
“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.
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?
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??
"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?
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.
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??
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)
I am not aware of any website or publication which tracks the ULIPs. May be Money Life will start one soon??!!!
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."
I am an advisor with ICICI Pru since 2002, this is almost ten years now. And I think this is fairly long term to assess the performance of any investment product. I have the data on how much money my clients have paid as premium, what charges are deducted from their premiums till date, how many units are allocated to them, under what option these units are invested and what is the current value of these investments. Going by this, I will emphatically say that it is possible to calculated the returns generated even in ULIPs over a long time horizon.
As I have mentioned above, I have the ACTUAL data of the performance of ICICI Pru ULIPs for my clients. I am not bothered to know the performance of other ULIPs since I dont deal with them. Therefore when some one asks me how much do I get my from ULIP investment, I can always give the historical rate of return in ICICI Pru ULIPs and say this is the performance of this ULIP since its inception and on an average this is the kind of returns my clients have generated.
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?
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.
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.
I am presenting facts here. All my arguments are supported by actual numbers. Where is the question of bias creeping in?