Home > Deliberations, Personal Finance > Is ULIP a Good Investment Route? (Part 2 of a 3 part series)

Is ULIP a Good Investment Route? (Part 2 of a 3 part series)


In the first part, I was trying to compare ELSS and ULIP and with the intention of arriving at the better investment path. We had proved that ULIP and ELSS are equally risky and their rate of returns are a function of their fund managers capability. In this post, I will look at the 3rd most common reason in favour of ULIP namely the advantage of getting a Life Insurance also bundled in the product.

ULIPs offer life insurance as part of the standard package. This is because, unlike ELSS, a ULIP is primarily an insurance product. What we need to understand now is that with the life cover as an added benefit, does ULIP become an investment of choice?

To answer that question, we need to first look at the cost structure of both the products. For a direct investment mutual fund, the associated cost is the Fund Management Charge which is typically in the range of 1%-2%. On the other hand, ULIP charges the customer under a lot of headings. Common among them are as below:
1. Policy Administration Charges
2. Fund Management charges
3. Initial Management Charges
4. Premium Allocation Charges
5. Mortality Charges
6. Switching Charges

To give this a little more credibility, I have created an excel sheet (downloadable from here) which captures all the information about these charges. I looked at ICICI Pru Life Time Gold Scheme and filled in the information in the excel sheet. The results: for a Rs. 30,000 premium per annum, I was loosing Rs. 12075 in Year 1, Rs. 4575 in Year 2 and Rs. 2475 for year 3 onwards. In effect, I will be paying all this to get a life insurance cover of 3 lacs. Is it worth it?

I ventured out and discovered the prices of term insurance separately. I discovered that I can get a Reliance Term Cover with a Sum Assured of 10 lacs for Rs. 2200. On the other hand, the ULIP was giving me the insurance for a minimum of Rs. 2475 for a sum assured of 3 lacs from Year 3 onwards.

Conclusion: In concluding, I would like to note that each ULIP product has its own charge structure. But, whichever product it is, I think it is prudent to opt for an ELSS for a tax saving investment option. If life insurance is also desired then one can opt for a separate Term Insurance plan.

Note: Information about ULIP, Insurance and Mutual Fund schemes quoted here are taken from the respective website of the service provider.

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  1. March 20, 2009 at 6:07 pm

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