In an interesting move SEBI has banned all the prominent Insurance Companies in India from issuing ULIP. The idea behind is very simple. The nature of these policies is such that a part of the money put in by the investor goes into the stock market – it is managed in a way which is quite similar to a mutual fund – therefore it comes under the purview of SEBI.
There has been an ongoing tussle between SEBI and IRDA over this issue as IRDA has been of the view that since these plans are primarily insurance plans therefore ULIP should be kept outside the radar of SEBI.
From the investor point of view this is a very positive development. It has been seen that selling of ULIP has been a very dirty game since inception. Such insurance policies are sold to innocent customers as investment plans and they are usually promised guaranteed returns by the sales agents – when an instrument that invests in the equity market can never guarantee any return.
SEBI in the past has also rationalized the Mutual Fund Industry in the benefit of investors by waiving off entry and exit loads for doing away with the perennial problem of churning of portfolio.
Presently the equity linked insurance options are burdened with commissions and charges – because of which a major amount does not even get invested.
The 14 companies barred from issuing ULIP with immediate effect until further issuance of order are:
- Aegon Religare
- Aviva
- Bajaj Allianz
- Bharti AXA
- Birla Sun Life
- HDFC Standard Life
- ICICI Prudential
- ING Vyasa
- Kotak Mahindra Old Mutual
- Max New York Life
- Metlife India
- Reliance Life
- SBI Life
- TATA AIG Life
Update on 11th April, 2010
In further battle between IRDA and SEBI, IRDA has asked Insurance companies to ignore SEBI ban and continue selling ULIPs. It termed SEBI order as against policy holder interest and financial stability.
Now question comes that who has the right to regulate insurance companies. Is it IRDA or SEBI? Only court or finance ministry can resolve it now.
Update on 12th April, 2010
SEBI has lifted the ban on selling of Unit Linked Insurance Polices (ULIPs) by 14 insurance companies. This move came in after SEBI guys met IRDA and finance ministry people. But Finance Minister Pranab Mukherjee has said that final decision will be by court.
Update on 13th April, 2010
Finance minister Prnab Mukherjee has said that he wants all financial products to move to ‘no-entry load’ regime.This clearly shows the stand of finance minister. This is in investor’s interest.
When SEBI removed all entry loads from Mutual fund investment, Mutual fund agents got affected. Their commission was cut and they stopped pitching to customers as they were not getting out of it. However, ULIP agents were making huge money (10-50%) on commissions from first 3-5 years of premium. Now SEBI wants a level playing field for both the agents, mutual fund and insurance ones. So there should not be any partiality for same kind of investment (both ULIP and MF invest in share markets). This was the main issue due to which SEBI banned ULIP selling.
SEBI has again issued a circular again saying that ULIPs launched prior to April 9 can be continued as usual but after 9th April, SEBI approval is required. IRDA has rejected this circular also 
Why Not LIC banned to sell ULIPS? Even there charges are HIGHER!! And even till date LIC is not printing charges on policy bond, which is compulsory guideline by IRDA. I request media to raise this issue on behalf of customers as LIC is still having more then 50% of market share in insurance Industry.
it is correct that most of the times private insurance companies are screwed up where as
The government has taken up crores of rupees as paid up capital from these companies.
When Often these private players are yet to break even and are surviving at heavy losses often the media and the government try not to support these new companies
i myself work for the icici prudential life insurance as insurance advisor . trust me ULIP’S were far more better than mutual funds. i have treid and tested it. i purchased 5 MUTUAL FUNDS and 3 ULIP’S AND compared them after 5 yrs found out that ULIP are more profitable . thou i agree the charge structure is quite comparable and competitive , but as far as returns is concerened, ULIP’S ZINDADBAD …
@Sameer
Can you answer some simple questions? Is insurance is an investment?
Do you expect something in return when you get your car insured, in case nothing bad happens to your car in policy period.
I believe insurance companies in india have taught Indians everything except insurance.
You tell me how many Term insurance you have sold till date and how many ULIPs or endowment plans (which gives you huge commissions). Its all about business where big companies make fool of ignorant public.
You tell me how much amount an average insured Indian is insured of.
The total amount of life cover or sum assured on the 26 crore policies in 2007-08 were merely Rs 23.96 lakh crore. This translates into average life cover per policy to just about Rs 93,000. If something bad happens to that person, do you think by 93000 is enough to take care of his/her family, even after paying a good amount of premium every year. This is a very small amount and cannot termed as financial security by any stretch of imagination.
The market for insurance products in India is based on the ‘push’ rather than the ‘pull’ model and that insurance is typically sold as a tax-saving instrument here.
Its the Indian customer’s financial illiteracy, that you guys are getting benefit from.
respected sir,
i wish to inform you i maintain data for each and everything. it is not at all about huge commisions which you referred to . i ensure all my clients are given on-line access so they can track NAV and portfolio of all our funds. plus i too dispatch by post xerox copies of our funds related matters. adding to my statement, we have a in-house mazine which i also e-mai lto my clients. i also make them aware about the changes from time to time about our systems leaving no stone unturned. it totally depends on person to person how they form an opinion. i have my self tested by purchasing 5 mutual finds and 3 ulips . i am talking based on my practical experince and not on media-savy language ..
@Sameer
If both Mutual funds and Ulips invest in markets, then they should have similar returns.
Why are you comparing Investment with insurance.
Insurance is about risk avoidance and by putting money in ULIP, you are investing in share market, which is again risky. So no point selling insurance which is more investment product than an insurance product.
I have recently purchaes a ULIP from a pvt sector co., but it is in free-look-up period, should I continue or discontinue.
@Satyan
There is no need to panic. Govt will ensure the interest of investors.
But If you invested under suggestion of some agent, or for just tax savings, or just for 3-4 years; you should consider discontinuing that If there is no loss because of moving out of ULIP at this stage.
You can better get a term insurance and invest rest of the money in PPF or ELSS.
As per my view, SEBI is going in right step as these insurance company agents has been fooling customers by promising very high returns. Insurance should not be linked to equities and should not be looked upon for ROI.
Hi Pankaj
I have a ULIP of Max newyork life since Jan2006. Since MAX is in the list of companies banned by SEBI for selling ULIP so what will happen to my ULIP? I can still see SIP is active in my ULIP and money has gone this month also…
Also pls advice shall i continue investing in this ULIP. Till today i am in loss in this investment. i.e my fund value is less then the total premiums paid.
Regards
Manish
@Manish
Government will protect the investor’s interest and as they are lakhs of policies already sold, so investment just can’t go nil.
However, You are in loss because somebody else (read insurance companies and agents) have made profits by deducting huge upfront load in first 2-3 years. This is the same reason why ULIP is not a good product. Its completely mis-selled product. Govt and SEBI are now coming forward to save public from this. Probably people will learn lesson from this episode and won’t put their hard earned money into agent’s pockets; out of their ignorance.
@Pankaj
Pls advice shall i continue investing in this ULIP. Till today i am in loss in this investment. i.e my fund value is less then the total premiums paid.
Regards
Manish
@Manish
You may stop investing in ULIP further and rather get term insurance and ELSS. But don’t take out money already invested in ULIP as that would be even worse to take it out as you may get very less amount back.
WHAT WILL HAPPEN TO OUR FUNDS INVESTED IN ULIPS ANY CLUE WILL LIKE FINANCE COMPANIES THESE GUYS WILL SHUTDOWN
@Vinodh
Please do not panic. Fight between SEBI and IRDA has ended and Govt has given IRDA the power to control ULIPs.
Government is always with investors and your money will be safe.
Hi Pankaj,
I had invested in ICICIPru ULIP in december of 2009 as a tax saving investment. I had earlier been investing in ELSS, but my agent asked me to try new instrument and suggested me this. (I am very sure that she didnt inform my about these huge fees that will be deducted every year. when I asked her she said she did do so while selling the instrument). I have already paid the first premium of Rs 40,000 and the next one is due this december. Please suggest if I should continue this policy or cap the losses (if, any) at this figure of Rs. 40,000. Would I get any money if I withdraw now from this policy. The agent says she is quite confident that the policy would make good money after five years. When I asked the agent she said that the fees would be mentioned in the policy document (which I could not find). Please suggest as to how to find the part of my premium thats going down their pockets. Thanks, and sorry for this long a query.
@DilipKumar
First of all, let me tell you that like so many other Indians, you have also been cheated by insurance agents who want to make money from ULIP commission.
Unfortunately, whole industry is making money out of that (even policy makers). Everybody in insurance industry is trying to sell investment plans in name of insurance.
I don’t see a point now to withdraw money as the return you will get will be too less compared to what you paid.
Pay premium for at-least 2 more years and remain invested thereafter as well. You will get real value only after 3-5 years.
Buy a good term insurance for sum insured around 100 times of your monthly net salary.
Hi Pankaj, I started with a MNYL ULIP(Life Maker Premium-Growth) in Dec’07. Now that 3 yrs are going to complete, I want to withdraw from the policy completely. Well I have just got to know that due to my earlier ignorance of the conditions and charges what the Insurance company is going to levy on my policy amount is of 25% if I redeem all the units post 3 yrs..and according to mnyl reps. I should keep myself invested in the policy till 2017 to get max. benifit. I feel cheated and disgusted.
Pls. guide what corrective option should I choose to get my money back and incur min. losses.
@Sumit
Unfortunately you are also one of the investor who has been cheated by keeping uninformed.
You must have read all terms and conditions while buying the policy. Little can be done now.
Its better that you stay invested in it for long, then only it can return you something. If you sell now, you won’t even get what you paid.
hello pankaj,
i’m very new to investment and stuffs …but just recently (about 2 months ago) purchased Max New York’s Fortune Builder (ULIP i suppose) wherein every year i pay about 50,000 Rs. Please can you tell me whether this was right decision and please suggest me any other better plan ..and note that i ‘am more keen on saving my income tax rather than investing as such. Thank you very much in advance
@Sharad
First of all, let me know what was your criteria for investment, Was it life insurance or investment?
Did any agent/relative sold you this policy or you selected yourself after through study?
hello pankaj,
thank you very for your prompt answer.
actually for me the end returns are not on priority ..rather its the tax saving benefit and ofcourse as a means of saving for future. and yes to be very frank …it was sold to me by a relative of mine so could not help but to accept.
@Sharad
Its not good to not worry about return from investment and just do it for income tax saving purpose.
You should not put money for tax savings unless it gives you better return or serves insurance purposes.
I would suggest you to first get a term insurance (for about sum insured about 100 times your monthly salary) and a Medical insurance (family floater policy for your whole family).
After that, whatever money you are left with invest into ELSS Tax saving mutual funds, PPF and Bank Fixed deposits, in a ratio that suits your risk appetite.
And thanks for accepting that some relative pushed this policy to you.
This is the problem in India, we take important decisions of life without doing research ourselves. Just that relative is getting a huge commission out of the policy and had to fulfill his sales target, he pushed a bad policy to you.
well thank you so much for the reply and i’m so not happy with my relative now…hahaha..anyways i’ve gained a fair amount of knowledge from this link of yours…keep up the great work going . And i really appreciate you for going outta your way to help people like me. Thanks a lot.
Hi, i am thinking of taking a LIC ULIP policy for USD 6000, per annum, for a 25 year policy period.
This is to serve the purpose of a long term investment/return plan.
I wanted to check with you regarding the validity/risk factor of this plan and also if it is advisable to put the money in something like this.
Since I am an NRI, i wanted to know what would be the best investment option in india.
@Vinil
ULIP is defiantly not the best option from investment option.
Its a bad product in which investment is mixed with insurance.
You can choose to invest in Equity mutual funds for long term investment.
Hey pankaj, thanks for your advice. But when you invest in equity mutual funds wouldn’t it be something you have to be actively involved in with regards to ensure that your safe. Also which company would be best to work with for equity mutual funds? Thanks
@Vinil
There is not much need to actively involve in mutual funds.
Just go for reputed funds and you can choose from HDFC Top 200 Fund, DSP Backrock Top 100 fund, HDFC Equity Fund, ICICI Pru Discovery Fund and Birla Sunlife Frontline equity fund.
Stock market invest needs involvement on periodic basis and also require knowledge. Mutual funds are managed by fund managers which invest for people into markets. People who do not have time and knowledge, should invest in mutual funds.
Pankaj, though there are initial charges in ULIP. But in the long run, one may end up making more money in ULIP as the Fund Management Charges are less (1.35% max) in ULIP as compared to MFs (2.25%) so when the corpus grows more FMC goes (and thats also a commission only shared between agents etc). However, I agree that ULIPs are not for insurance its for investment. If one is looking for insurance then one can buy term insurance. One can go for a mix of ULIP and term. Say if 50L is SA in ULIP and one needs 1cr as insurance, then for 50L a term can also be bought. I am an individual and this is what I understand…share your views.
@Manish
There are various points to be considered here.
1. Low/high fund management charges does not necessarily results in good management. There are n number of mutual funds which have less fund management charges and have performed very well over a period, whereas there are other which have charges too much with no returns. Ultimately its how the funds are managed that matters.
2. Fund Managers in insurance companies may not be that expert as that of a pure mutual fund company. A good fund manager can give you good returns in same market in which bad fund manager gives negative returns.
3. Insurance is meant to cover risk of your life and not to fetch you returns.
4. ULIP also have Policy administration charges, Premium allocation charges, Mortality charges (apart from fund management cost) deducted.
5. Most of the ULIPs won’t be eligible for tax saving from next year, once direct tax code is implemented.
As you suggested if one needs one crore’s insurance, he can get 50L ULIP and 50L term insurance. How much a 50L SA ULIP’s premium will be? That too when comes without any tax benefit.
1 crore pure term insurance would come around 11-12K for a 30 years non-smoker person (ICICI iProtect online plan) and rest of the investment can be done into combination of Equity and debt mutual funds or PPF + NPS (if tax benefit is required).
Pankaj, though yes there are plus and minus in every product, I am just comparing the two accordingly, so when I compare there are some assumptions…
1. Both ULIP and MF is growing at same rate means the fund management is equally good at both. Having said that I mention the following. Also I am not considering the tax saving purpose here, though currently both ULIP and MFs(Tax saving) have tax saving options. I am considering pure investment where I like my money to grow exponentially.
-> ULIP has maximum 1.25% as the FMC by IRDA and MFs has 2.25% max. So given that both are growing at the same rate, maturity amount would be larger in ULIP.
-> Yes, one has to buy ULIP by seeing the charges, if the charges (Mortality, Policy Admin, Allocation etc) are high then one should not buy. There are products in market where the charges are not high. Hence, that can be preferred.
-> ULIPs are available say for 99 years means till your life, so if one has bought now…then it would keep growing till 99 years and whenever required one can draw the partial amount as and when need is there. But MFs are like that if after 10 years I exited, then the maturity amount which i got though that is tax free, but I would invest that somewhere and that maturity would not be tax free after DTC.
-> 50L SA for an example, one can take as per their own need and requirement.
-> But one should invest in ULIP only when the horizon is longer like 25-30 years atleast, if the horizon is lower then MFs are better.
-> My point was there are positive in ULIPs also, so if those positive suit ones requirement and negative can be balanced by a combination of ULIP and TermPlan then one can go for ULIP. However, while purchasing one should clearly see the illustration to find what charges are being levid, instead of just asking the advisor where to sign on the form.
@Manish
Your assumptions are correct. If bought intelligently ULIP may also generate similar results as that of equity mutual funds.
One clarification on your statement, Mutual funds may also be kept for 99 years and whenever somebody needs funds, he may partially redeem some units.
Another issue with ULIP which may come in future that as when they come out of tax benefit, few people will invest in it. This will lead into less amount as AUM (assets under management) which may switch insurance companies’ focus away from these.
I am deeply concerned about insurance companies and agents marketing ULIPs as 3-5 years product and fooling common Indian investor. This forum is to educate these investor to understand products before investing.
Hello Mr. Pankaj, your articles are extremely useful for planning investments….Thanks for that. I am 25 yrs. old and I am paying Rs. 14026 and Rs. 6120 as an annual premium in LIC Jeevan Anand and LIC Jeevan Saral since last 2 yrs.To b frank I had very little idea about these plans and were thrown to me by my freinds who are agents. My aim was insurance+investment. Now I can understand this is wrong concept. Now I would like to ask you whether I should continue to pay the premium for 15 yrs. or I should stop and
i) Take good term insurance? and
ii) Put excess money in ELSS SIP?
Which are the good ELSS schemes for SIP (Not necessarily tax saving)?
Which are the good term insurances available?
@Vaibhav
Nice to know that you realized your mistake. Its unfortunate that for some commission, agents are fooling common people.
As you have been paying since last two years only, if you decide to surrender policy or stop premium payment, you may not get back most of the amount paid.
Jeevan Saral has paid up value benefit so you may stop premium payment after three years and still continue policy with a reduced sum assured. But Jeevan anand does not have this benefit.
Its your decision now to take loss now or continue paying for with these policies for next 15-20 years, lock the investment and get a small return on same later.
But for sure, you must buy a good term insurance policy now for pure risk coverage. And for investment you must put your money in a portfolio mix of diversified equity and debt based assets.
You may buy ICICI iTerm insurance policy online. It comes at a pretty cheaper premium as no commission/agents are involved. If you want a policy from LIC, you may buy Amulya Jeevan, but I would advise you to wait for sometime as LIC is also coming up with online term insurance to compete with others like ICICI, Kotak, MetLife etc.
You may invest in tax saving mutual for this financial year only as after March, 2012 (Direct tax code date), tax benefit won’t be available. You may choose from Canara Robeco Equity Tax Saver, HDFC Taxsaver, Franklin India Taxshield, DSPBR Tax Saver and Fidelity Tax Advantage for this period.
After Direct tax code applies, invest into PPF and NPS (http://www.pankajbatra.com/india/new-pension-scheme-nps-india/) for tax saving investment. In NPS choose Debt and Equity ratio based on your age and risk appetite. For investment choose diversified mutual funds.
Also, please read following answers page too: Need best suitable Mutual Funds to invest large amounts and mutual fund investment and SIP
What is the child policy to invest upon at this point of time?
@Abhijit
No insurance plan is worth putting money for investment purposes.
If you want a good return on your investments for child future, go for a portfolio of Equity mutual funds, PPF and some part of gold.