Monday, 16 May 2016

Why you should avoid the ULIP trap

This blog has seen its fair share of ULIP Products in the past and I have always been against ULIPs that charge exorbitant fees & charges from their investors as well as agents selling ULIPS just to make a fast buck. Unfortunately not many investors know about ULIPs and their fees & charges and have fell into the trap. The idea behind this article is to bring to your notice some shocking news I read in the new today as well as some suggestions for you if you are a prospective or current ULIP Investor.
ULIPs are not investment products
Agents & Sellers of ULIP Products rarely mentioned the fact that ULIP Products are primarily Insurance products. Instead they sold them as investment products. Each of these agents had one fancy work-up calculation that would hypothetically predict a 20% or 30% returns year-on-year and say that if you Invest Rs. 2 lakhs per year for 10 years you will get something like 2 crores at the end of 15 years.
ULIP Returns are linked to the Stock Market Performance
Agents & Sellers will never mention the fact that ULIPs aren't invincible. They will never tell you that your ULIP can make losses in case the market tanks. They keep lay the honey-trap so well that as an investor, you fail to realize that ULIPs can make losses and end up investing in schemes that are highly aggressive and invest almost the entire corpus in Stocks.
ULIPs aren’t the only tax saving instruments
One of the biggest selling points for Agents is the tax benefit for Investors. There are numerous other tax saving products and many of them are 100% safe and don’t have the kind of risks that ULIPs have. So, don’t get fooled if your agent is trying to convince you that these are the best tax saving options. Unfortunately they are not. There have been many articles about tax saving in this blog. 
he Fees & Charges are not explained clearly to Investors
When the Agent is selling his ULIP Product to you, he will not mention the fees & charges the Insurance Company that is providing this Ulip Plan Comparison is going to deduct from your annual premium ever year. This is because these charges form a significant chunk of the premium you pay every year. So, realistically speaking around 10% and as much as 40% of your premium goes to the agent & his company just for selling this product to you.
Even in the mathematical work-up they show you, they will not consider this chunk that goes into their pocket and their calculation will always show that 100% of your investment is considered as an investment.

No comments:

Post a Comment