I do not need to tell you that there is a huge Irda vs. Sebi or a mutual fund vs. unit linked insurance plan debate in the country…do I? LOL.

However this has ensured that many journos have called me…for a view. It is nice that they take my view – however I am not sure that they want to use it or perhaps I have not made myself clear. So let me tell you how 3 questions went:

Question 1: Life insurance margins are very high, no? 40% is too much. What do you think?

Answer: I did not understand the question, but I guess you mean the agents commission, correct?

Q: No, No, I mean the life insurance companies have a 40% margin, do they not?

Answer: You mean 40% of the life insurance premium collected is the NET profit of the life insurance company?

Q: Yes.

Answer: Whoever told you that must be having some sense of humor. In case of any business there are lots of complications, and a lot of work to be done to earn money. In life insurance business people have to be hired – as actuaries, as underwriters, accountants, sales managers, etc. AND all this is funded by the Share capital of the company. Once the plans are up and running running costs have to be incurred. Life insurance is a reasonably profitable business after the company spends at least a decade doing developmental work. It is clearly a long term project but still the margins are nowhere near 40% of the total premium collected.

more queries will follow…I need to consider the load I can put on your stomach – imagine having a reader dying of laughter 🙂

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  1. I know that the 40% margin for an Insurer is wrong. But an ordinary investor, like most of us, has to bear that 40% cost anyway.

    So even though an Insurance company may charge less fund management charges down the line, don’t you think it is not advisable to “invest” in a ULIP?

    ULIPs are evil, I think. Wd love to hear counter arguments! 🙂

  2. If you do not know portfolio construction (99% of people I have met/taught/ advised), do not understand compounding (99.9% of the people …) and do not get carried away by the media (110% of the people …) you HAVE no choice but to do a SIP. If your view is 4-9 years choose a mutual fund, if your view is > 10 years choose a ULIP. Use Top ups liberally, the total costs come down dramatically.

    Personally I have Hdfc ULip bought in 2004, nicely topped up a lot of times (under the old law top had only the Income tax limit)…at 0.8% amc. There are periods when IT HAS OUTPERFORMED Hdfc top 200 🙂 LOL.

    Going forward thanks to the compounding effect…it can only improve. LOL

  3. Dear Subra, Don’t u think that the ‘Portfolio Construction’ & the ‘Compounding’ & ‘Asset rebalancing’ etc. if not understandable by 99% indian public than just for 1% of the known class, is it really good to run a product like ULIP?

    My personal view on ULIP – A Good product that’s designed badly & is sold even more badly.

    Instead of high front loading of costs, isn’t it advisable to equalize the cost over the term of policy which ‘ll help to earn extra from compounding for the poor policy holder?



  4. not badly designed, but complicated. Knowing how to BUY is important. We buy say 200 products in life. A few we get obsessed with cost, margin, ..etc. others we do not. I know of a big food chain which gets basmati rice @ Rs. 10 while procuring. However we happily buy it off their shelf for Rs. 70 because we are used to it. Pepsi buys potato @ Rs. 3 and sells Lays chips @ Rs. 400 a kg. However the process we believe is so complicated that we HAPPILY pay. Competition will help, consumer education will help. However there is a mafia against consumer education. And the consumer is normally his own enemy!!

  5. Dear Subra, I have a basic question regarding the ULIP. Life Insurance is required to meet the needs of our dependent to maintain current standard of living even the bread winner is no-more.

    I am wondering is it a good idea to link the same with equity market. In case if we can invest 1/4 of the money in term life insurance the coverage we get is much higher.

    Please provide your recommendations about term life with mutual fund or ULIP.

    Your valuable suggestions are highly appreciated.

    Thank you.

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