Fintotal News Analysis | The Sorry Tale of ULIPs in India
The Sorry Tale of ULIPs in India
, 08 Feb 2011

The problem starts with lack of investor awareness. Most of us in general have little interest or awareness about personal finance. We complain about lack of time and lack of knowledge in dealing with finance. Yet, we do get acute attacks of panic when we think about retirement or about our child's future. Unfortunately, this doesn't translate into a step-by-step action agenda. Instead, we catch a product that contains the buzzwords - 'child's future', 'pension', 'retirement', etc and blindly put money there.

The industry (particularly insurance) has found a way to exploit this:

  • Advertise a product high on buzz-words
  • Keep the product features complex, and advertise only the positives. Most investors wouldn't bother to understand anyway.
  • Pay the agents and brokers hefty commissions to 'sell' this product, since products here are not 'bought' but are 'sold'. Recover this commission money from the investor herself, as high charges. The complexity above ensures people do not understand the charges anyway
  • Enroll a full army of agents so that they can at least sell to their family and social circles

Many agents have gone even a step ahead:

  • Talk only about the positives, and project returns based on ridiculous assumptions of growth
  • Hard-sell - give false assurances if necessary, use sentimental pressure to convert fence sitters
  • After three years of premium payment, when commissions come down, come back to the investor with a new product with high commissions again

It is only after this fraud has reached huge national proportions has the regulator IRDA woken up. It is now working overtime to try and clean up the act. However, it is at least a few years away from making the insurance industry a genuinely customer friendly place.

We as individuals cannot change the regime - but we can certainly protect our interests. One way is to avoid ULIPs, and stick to simpler products like deposits, shares and mutual funds. There is a simple insurance product called the Term Plan, which should very well take care of all our insurance needs. This brings us to the other way to protect ourselves, which is to build a basic awareness, so that we can understand products we are getting into.

This is not as difficult or painstaking as it sounds. It doesn't require one to become a finance expert - all it requires is an hour or two of time every month to deal with personal finance. After all, no matter what our profession, finance is an inevitable component of our life. So it is very much worth it!

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