ULIP was the biggest buzz in the market till september this year. Your polite agent would have been talking about it more recently. We all have been getting calls from various Corprate agents of different Life Insurance Companies till recent days. However, I guarantee, if at all you call the same people to provide you the ULIP policies now, they will be least interested and pitch in for Traditional Plans. They had several USP's (Unique Sales Proposition) and advantages as well as all good reasons they have been telling us to go for a ULIP policies till now, but today in the market, the same people are saying that ULIP policies are not worth it.
This was bound to happen as IRDA rolled out a customer friendly policy, which was sought after the long tussle between IRDA and SEBI over the control of Market linked Life Insurance policies. For sure, IRDA have made an effort to control Mis-selling in ULIP policies, which has for sure resulted in reduction in selling ULIP policies, but begining of Mis- Selling Traditional plans.
One of my friend was about to buy a ULIP policy from his close associate who convinced him well to go for ULIP policy. However, when he spoke to me, I suggested to wait for about 2 months as all existing ULIP would stop and New ULIP policy with lesser loading charges would be introduced in the market, resulting in much higher yield for his Investment. Today the same agent is giving all good reasons not to go for ULIP policies but traditional Plans.
The reason is simple, Insurance has been a push based product, where people dont have much knowledge and rely more on the advice of the Insurance agent. Even the so called big and reputed corporate agents like banks, have always sold the products where they make more commision at the cost of their customer's money, resulting much higher loading charges for customer providing them with much lesser Net as well as gross yield.
For sure ULIP's were a mess earlier, but atleast somewhere in the policy document all related charges were mentioned and there were chances that customer would read that and probably cancel the policy within free look period. Traditional policies are more dangerous as customers would never know where their money would be invested and how much he would be paying as charges. Even the Asset value would not be declared to the investor regularly as being done in ULIP in which NAV is declared every business days.
ULIP's atleast provided some transparency, but investing in these traditional plans,one wouldn't know where the money has been invested and what return it has obtained.
When contacted the top managemnt of 2 private life insurance companies, they declined to comment anyting on this but have found from sources that why ULIP is not being sold the way it was done earlier.
Reasons why ULIP's are not being sold aggresively now
- Reduced Commision in ULIP's has been reduced multifold
- Only smaller chunk of commision would be paid in initial years and only after 5 premiums are paid, sizeble commision would be made to the agent.
- If at all policy is surendered within 5 years, no commision will be paid to the agent.
Things to be considered before taking a Traditional Plan
- If at all you are young, risk savvy investors, traditional plans are not for you as the yield is much lesser, Infact it would be negetive when we factor out Inflation percentage.
- Never count on bonus shown in benefit illustration, as most of the time its indicative only and not guaranteed.
- You would not be having any control on where your money is being invested.
- You might not even know where your money is being invested and what is the current asset value.
- The policy will have very less surrender value for first five years. If at all you have to surrender the policy in first 5 years, you will loose bigtime.
- Most of the policy is not desigend according to your insurance or investment needs.
Lesson learnt from Tightening of ULIP norms to curb Mis-Selling for the benifit of the customer.
I believe that it was not only the ULIP product to be blamed for the entire mess which happened earlier, but one thing is for sure that any product which offers more commision to the customer even at the cost of customer's benefit, will rule the market. Curbing only ULIP malpractice will not help, but entire product range should be checked. Even, only agents are not responsible for the malpractice, but companies are equally or more responsible.
Although IRDA has made an effort to make ULIP's more customer friendly, but instead making this benifit available to the customer, Insurance companies as well as agents have still lot of space as well as scope to Mis-Sell and pocket money from innocent customers.
I am waiting for the day when IRDA will Monitor and prevent Mis- Selling in all kind of policies.
