Here are the annual charges as explained by the sales guy
7.5% Fund allocation charges (only first 2 years)
1.9% Mortality charges (increase each year)
0.45% Policy Admin charges (only kicks in the 6th year)

After 5 years you can make the plan ‘Paid Up’ in 5 years which will cover you for the rest of the term

I am taking a 50L home loan and thinking of taking this plan so that the loan amount is covered and the fund value could possibly help in pre-paying the loan say after 10 years or so?

What do you guys think of this plan?

I respect your intentions but Sanjiv your awareness about insurance products lacks a lot! We can blame or praise ULIPs for various reasons but kindly don’t blame them for all the wrong reasons!

The ULIP promotion in a aggressive way was done by private insurers and espeacially by I-Pru advisers/agents. It is unfortunate that the majority of the advisors were selling it without utilising the excellent features it had to offer. Their signature ULIP product, ‘Life Time’ was simply amazing. If you knew about it and many other products; which were stopped in June’06, it would have totally changed your views about ULIPs and their utility.
In your 5′th point you mention that ULIPs leave you horribly underinsured and one should opt for term plus other investments.
Have you made these conclusions based on half baked information from agents and even employees of insuance companies? The plan like ‘life time’ was allowing a SA to premium multiplier of 150 at age 30 and 100 at age 40. Did you know that? For a reasonably low premium of 20,000 a 30 year old person could purchase a cover of 30 lakhs? For same cover 4 years back for 30 year tenure a 30 year old would have required a premium of @9,000 at least; even if lowest premiums in the market were thought of. What was allocation charge on this 20,000 ULIP premium- a mere 20% i.e. 4000 in first year and what was the mortality charge- roughly half of the level term premium i.e. @ 4600. The rest of your level premium could grow @ 15% on long term basis whereas the mortality charges are not growing more than 8% till age 60. In the subsequent years the allocation was 1500 and falling to 800 in 4′th year onwards! Now just compare these charges with your level term premium; which is an expense according to you! (Dear, you have not understood the significance of level premiums and increasing premiums even now and how the ULIP works or other tradional savings plans work). Forget about the ULIP beating the term+mf combo in long term, or even 3-4 years span. This product was beating it in very first year! And I have personally sold these kind of multipliers in a ULIP. So don’t blame the product if you don’t know about it. Yes, you can blame the people for misselling a fine product. But please don’t throw the baby alongwith the bathwater!
(Here I don’t endorse the view of Subra for praising the ULIP. In my opinion he is doing it for the wrong reasons!)
Sanjiv, when I talk about ULIP, I’m also thinking of equity as an asset class like you do. In the long term it hardly matters in which mutual funds or ULIP funds your portfolio is devided into. Because there is a ‘convergence principle’ at work. It brings the overall retunrn on your whole of the portfolio within a tight band of performance which would hug the sensex returns very closely. So does it really matter in long term how was our fund selection or market timing or any other stratety which one may think of to manage the whole of our portfolio? So thinking that I can shift from nonperforming ULIP fund hardly seems to a winning strategy as all strategies would ‘converge’ the long term returns to the asset class return i.e. the Sensex.
You can think of insurance like an 1)expense 2) hedging mechanism or 3)asset. It requires really good understanding of the insurance concept and products to know all these perspectives. Your understanding is at the primary level only( otherwise you wouldn’t have thought of staggering those term plans and attached them to individual goal values! But more on it some other time)

regards,
shashank

@ Asoke, Even I am no fan of market timing and even I don’t know anybody who knows anybody who can time markets.
Switching was in the context of REBALANCING and NOT TIMING. In fact, since my comments were getting long, I HAD EDITED A LINE THAT SAID “NO BODY CAN TIME THE MARKET CONSISTENTLY.”

“BETTER THAN 3 POLICIES” can be decided on studying the merits of complete situation and products. I believe it takes much more effort to properly formulate a risk coverage plan rather than just buying insurance, even term insurance. So would levae it at that…

Agreed on being invested in equities througout & riding the booms. Luck is only in hindsight. Nobody knew in 2003 we are going to have such growth in equities for the next 5 yrs. Even in May 2009, for that matter. People who were “LUCKY” to have invested at that time have had tremendous returns.

ULIP is much more than complex than people beleive it to be.

I have always liked your comments and admire your intelligence. Keep up the good work.

1. Thanks to a few common friends have done 10 year + SIPs in Hdfc, Templeton and a few SIPs in I pru. All have consistently been in the top 10% of the performers, so our groups ability to pick the winners in the past gives me a great pleasure. No arguments about Hdfc having non performing schemes, I have not worried about a couple of quarters – my returns have topped 25%, and am thrilled. Have a UL also from hdfc slic, topped up, no regrets ala subra.

2. Switching means my financial planner KNOWS MARKET timing, sorry have not met ANY FP who can do it. Even the course content does not inspire me to trust my FP to do it for me. In fact I do not know anybody who knows anybody who can do market timing. So this is not a great feature. I am happy with a 100% equity allocation through out. Happy at that.

3. I have only Hdfc slic term insurance which allows me to drop parts of it whenever I want. Had about Rs. 100 Lakhs, have reduced it by Rs. 10L…same policy reduced premium continues. Better than 3 policies I guess.

4. Timing and luck..well we were all investing through out from the 1980s, 1990s, 2000s. Lucky? Well, not sure I have also topped up DEPENDING on my cash flows. Frankly I do not think it is about luck. Like Subra says it is about being in equities with all the money and keeping 5-7 years expenses in cash/ liquid / debt/ ppf schemes..

I do not think the Indian public is ready for UL – it requires very responsible selling and buying. S and I have used some surplus funds to experiment and have fun rather than ‘create wealth’ that happens, sadly only with good stock picking. That requires effort and friends like R M…..

It also amazes me that lot of my close friends from IT industry also buy ULIP without actually understanding the product due to rampant mis-selling. One of my friend had bought a Bajaj Allianz policy with 70% allocation Charges in first year. When she knew about it she was upset.

Even my fiancée has commitments in ULIPS and Traditional Endowment plans worth 64K per year. This was done on advice of her family and even I could not have say on that. When I showed her that the LIC endowment policy has returns less than a PPF she as least got a fair picture and
would let me manage he finances from now.

For people of old generations like my in laws and my parents the only investments tools they can think of is FD and Traditional LIC policy.
When I got my job a lot of LIC agents who were friends of my dad started bugging me to take a LIC policy. I had a hard time time to convince them that i was not interested in that.

Fortunately for me I had stayed away from ULIP’s and other plans . Would buy a cheapest term policy and invest rest in MF and PPF.

Thanks

I have always found that in MF Vs ULIP saga, almost all the time we are concentrating on “Returns/Expenses” only. Although this is the most crucial factor, there are other factors, equally crucial, which we tend to overlook. My objection to ULIPs are based on other possibilites:-

1. In MFs, in case your fund manager underperforms, you can switch over to other funds without any financial loss. In Ulips, you are stuck with same fund manager and ULIPs being too much front loaded doesnot help matters either. Also, in case you want to switch to another ULIP, you have to pay the initial charges again and higher mortality charges too. Those who think a good Insurance company’s ALL Ulips are performing are sadly mistaken. Even your favourite HDFC has schemes which have not performed well. There are still people whose Fund Valve has net reached even the amount of total premium paid till date. So it is much better to keep control of your money in your hands.

This is the most detrimental part of ULIPs.

2. People don’t know how to take advantage pf switching option that is one of the best parts of ULIPs.

3. It is not easy to structure your insurance needs thru ULIP. I think this can be done better thru term plans. Since longer term plans have higher premiums, it is easier to have term plans running concurrently of different durations based on your life goals. Say I have liabilites of 10 Lac for kids edu within next 10 yrs, their marriage(15 yrs), retirement fund for self and spouse(25 yrs), it is better to have term plans of 10, 20 and 30 yr durations and let them lapse as your liabilities decrease, thus reducing insurance EXPENSE further (For me, insurance is an expense, not an investment). Frankly, I don’t feel one has any insurance needs except spouse survival fund once your kids are educated, married and settled. Why have insurance at that stage?

4. You were lucky also that you rode the best part of Equity boom India has ever seen and also due to the fact that you made liberal use of top up facility. Those who were not that fortunate have entirely different story to tell. Since you had more funds at disposal at right time, your fund value swelled and brougt your mortality(risk) charges to zero. THOSE WHO COULDNOT TOP UP WOULD STILL BE PAYING THESE AT MUCH HIGHER RATES NOW.

5. Ulips ensure that you are horribly underinsured. Everybody does not have that premium paying capacity and it so happens those who require 40 Lac SA have to be content with 2-3 Lac SA. Swaroop committee points out that average sum assured per person in India is princely Sum of 93000/-. Great. Just tell the survivors of a family whose only bread earner has unfortunately died they are going to get this sum and ask them to survive.

6. In any case, new ulip norms have mandatory insurance clause even for top-ups, so that advantage is gone.

Ulips, I believe, can be good only for those fellows who don’t have any disciplione in life and can’t be counted upon to keep up their SIPs. For such fellows, ULIPs are the ONLY solution since they will somehow manage to pay premiums for their “INSURANCE”.

Regret such long comment but I think it was necessary to bring more things in perspective. Would luv to have your and other fellow readers views on this.