Insurance policy holders trapped in ULIPs are still paying the price for products approved by IRDA and then banned in September 2010. Should you continue with the policy based on long-term benefits propagated by the insurance company?
Insurance company spokespersons, their incentivised agents and financial planners have always been saying that while ULIPs (Unit Linked Insurance Plans) don’t offer great returns in the short run, staying with it long term will fetch you great returns. Millions of ULIP buyers are finding out that this is a blatant lie.
How will you feel if your investment gave less than 2% p.a. return on investment after staying with the policy for eight years? Suresh Kumar (name changed), father of the managing director of a Fortune 100 company for Asia-Pacific, approached the Moneylife Insurance Helpline regarding Birla Sun Life Classic Life II ULIP policy purchased in 2005 to cover his son for Rs1 crore. The funds were equally split between equity and debt investment.
He paid a premium of Rs1.82 lakh for five years and paid Rs30,000 for another three years. The account statement shows the total fund value to be Rs9.23 lakh. The total premium payment over the period of eight years was Rs9.98 lakh. Should Mr Kumar still believe in insurance propaganda to keep paying premiums long-term to get benefits? It seems that the insurer is getting benefitted and the insured is trapped in a loss-making proposition.
In the case of Mr Kumar, we have calculated the mortality charges for providing a cover of Rs1 crore and hence the return on the investment, which is different than the return on premium, will give less than 2% p.a. return. Mr Kumar is lucky that the product did not have any surrender charges after completing five years, but some toxic old ULIPs have surrender charges up to the end of policy term.
Many of the Moneylife Insurance Helpline queries are related to similar cases. The insured person is ensnared between the high front loaded charges of an old ULIP and steep surrender charges which prevent them an easy exit. The solace of the insurance product being long-term disciplined savings seems ludicrous with these policyholders who are ready to throw in the towel.
Moneylife’s message of keeping insurance and investment separate seems to resonate with these policyholders, but there is little that can be done for the existing policy unless the surrender charge has come down to zero, based on number of policy years completed.
Even though the Insurance Regulatory and Development Authority (IRDA) has banned old ULIPs since September 2010, what is the recourse for the policyholders who have been already trapped? It is time IRDA takes stock of the situation and offer relief to policyholders who are trapped in products it approved only to be banned later. It is especially true for old ULIPs which continue with atrocious premium allocation, policy administration and surrender charges even after completion of three policy years.
Insurance company spokespersons, their incentivised agents and financial planners have always been saying that while ULIPs (Unit Linked Insurance Plans) don’t offer great returns in the short run, staying with it long term will fetch you great returns. Millions of ULIP buyers are finding out that this is a blatant lie.
How will you feel if your investment gave less than 2% p.a. return on investment after staying with the policy for eight years? Suresh Kumar (name changed), father of the managing director of a Fortune 100 company for Asia-Pacific, approached the Moneylife Insurance Helpline regarding Birla Sun Life Classic Life II ULIP policy purchased in 2005 to cover his son for Rs1 crore. The funds were equally split between equity and debt investment.
He paid a premium of Rs1.82 lakh for five years and paid Rs30,000 for another three years. The account statement shows the total fund value to be Rs9.23 lakh. The total premium payment over the period of eight years was Rs9.98 lakh. Should Mr Kumar still believe in insurance propaganda to keep paying premiums long-term to get benefits? It seems that the insurer is getting benefitted and the insured is trapped in a loss-making proposition.
In the case of Mr Kumar, we have calculated the mortality charges for providing a cover of Rs1 crore and hence the return on the investment, which is different than the return on premium, will give less than 2% p.a. return. Mr Kumar is lucky that the product did not have any surrender charges after completing five years, but some toxic old ULIPs have surrender charges up to the end of policy term.
Many of the Moneylife Insurance Helpline queries are related to similar cases. The insured person is ensnared between the high front loaded charges of an old ULIP and steep surrender charges which prevent them an easy exit. The solace of the insurance product being long-term disciplined savings seems ludicrous with these policyholders who are ready to throw in the towel.
Moneylife’s message of keeping insurance and investment separate seems to resonate with these policyholders, but there is little that can be done for the existing policy unless the surrender charge has come down to zero, based on number of policy years completed.
Even though the Insurance Regulatory and Development Authority (IRDA) has banned old ULIPs since September 2010, what is the recourse for the policyholders who have been already trapped? It is time IRDA takes stock of the situation and offer relief to policyholders who are trapped in products it approved only to be banned later. It is especially true for old ULIPs which continue with atrocious premium allocation, policy administration and surrender charges even after completion of three policy years.
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