All the Life insurance companies are aggresively selling ULIPs showing some fancy returns & with some very good logic. I have done some calculation and found that its useless to invest in ULIPS.
Please go through the comparison below.
Amount Invested Rs 1 lac in ULIP
Insurance Cover: around 8 lacs
Allocation Charges: 20-30% first year, 10=15% 2nd year, 5 % third year
Which means units will be allocated: Rs 80000 first year, Rs 85000 first year and rs 95000 third year. which will be invested in Equities
Better Invest : Rs 92000 in Mutual Fund ELSS(Direct) which doesnt levy entry load. Buy (Example)Amulya jeevan term insurance policy from LIC in which you pay premium of Rs 8000 for cover of 25 lacs.
If you do this for 3 years total inflow will be much higher in investments as compared to ULIP.
Considering that money is invested in equities in both the cases and similar return is earned in both the 2.
What you get in both
Tax benefit: Similar in both the cases
Return: In % same
Risk cover: 8 lacs in ULIP and 25 lacs in ELSS with term insurance
Allocation deduction: Substantial amount in ULIP, Zero in case of ELSS, however term insurance premia is payble in ELSS+ term insurance. Also in ULIP mortality charges are deducted almost equivalent to Term insurance policy.
Reason why ELSS+ term insurance is cheap than ULIP.
In ULIP high amount is given as commision to the Life insurance agent in the first 3 years almost equivalent to allocation charges, wheras in ELSS you dont pay anything(if you purchase directly) or pay very less entry load 2-2.25 %. As far as term insurance policy is concerned, very less commision is given to agents in that policy and hence none of the agents are willing to sell that policy but convince their customers to buy ULIP.
Your article is indeed very helpful!
nice1... can you suggest me the best LIC plan for investment. Now a days pension plans from all insurance companies are in news
too many choices nowadays but very difficult to pick the best offer :-(
gr8!
Good job..When you talk about ULIP, The maintainance Charges ,Morality Charges , Allocation charges come close to 40% of annual PermiumEg.HDFC Pension Plans. Apart from that they charge every year for maintainace.
Lump Sum Annuity
I disagree with the analysis;
There are plans like Birla Dream Plan and Aviva Life Line which can offer insurance upto 1-2 Crs for same premium of Rs 1 Lac, in which case your analysis will fail. Also there are several other flexibilities and benefits that can be availed in a single ULIP rather than buying several plans.