Just imagine new vehicle introduced in india with the features of both Bike and Tractor in one vehicle. We can use the vehicle for personal travel and to transport the heavy load. That would increase unnecessary fuel consumption if we use it for personal travel due to engine power. If we want to use for heavy load, it may not be fit for heavy load as it designed to work like bike. So the vehicle may not be good for personal travel or heavy load transportation both. The same applicable for ULIP. Avoid ULIP.
Insurance cum Investment Trap:
Insurance companies is good at providing insurance plans. But they try to provide instrument for insurance cum investment, it becomes not good at both insurance and investment. Why ULIP is not good for both. Let us take an example.
ULIP: Monthly 5000 rupees for 20 years term. Total amount paid is 1200000 (12 L)
Consider 8% return from market in that, total maturity amount. 2300000( 23L).
Amount would be invested after deduct all the expenses and commission to insurance agents. (around 20% of your money).
Just split the money into two parts. 1000 rupees term insurance and 4000 rupees in mutual fund.
Mutual Fund : Monthly 4000 rupees for 20 years term. Total amount paid is 1000000 (10 L)
Consider 8% return from market in that, total maturity amount. 2300000( 24 L)
Term insurance : 35 years male, Monthly 1054 rupees premium provides coverage of 75 lakhs.
So insurance coverage for 75 lakhs, Investment for 24 lakhs.
Term insurance for insurance and mutual fund for investment. Do not buy insurance cum investment ULIP. It is not good at both. Mutual fund companies mainly for investment and they analyze each mutual funds. The invest into mutual funds based on market. But ULIP mutual funds are not looks like managed by experts. It it not giving best returns while comparing it past performance.
Don’t fall into ULIP by fancy word “tax saving” or “80C”. Even term insurance and mutual funds(ELSS) are tax saving and 80C investments.
- Is not a pure investment tool, as pitched by most of the sellers.
- you should go for combination of term insurance and mutual funds, which can serve your purpose.
- ULIP lock-in period is 5 years and it is mandatory to regularly pay premium till the end of the chosen term. So exiting early would mean extra charge.
- Your invested amount would be reduced after deduct Mortality charges, administration charges, premium allocation charge, exit charges and commission to agents in ULIP.
ULIP may be good for insurance company, sales manager and insurance agents. But not for you.
Do not fall into ULIP trap by assurance from seller that “Money would double in 20 years”. If you analyze properly and invest proper mutual fund to get return of 12% returns, you should get 4 times of money you invested. Now just double your money.
Money SIP amount : Rs. 2000
Returns: 12% p.a for 20 years horizon.
Total SIP Amount Invested: Rs. 4,80,000
Future Value: Rs. 21,39,039
Do not ever agree that ULIP and Mutual funds are same. Mutual fund does not have lengthy list of expenses like ULIP. Final note, Buy a bike to enjoy your trip. Tractor to transport heavy load. Two different instruments, two different purposes. Same for insurance and investment. No to insurance cum investment. No to ULIP.
Investing in financial knowledge gives best returns in the world. Explore mutual funds, Term insurance. Happy Planning.!!