Moneyraam

Please refer the product brochure before concluding the sale.

You would have heard this many times in advertisements, but how many of us while investing in ULIP, do read the product brochure. Government has made it compulsory for the insurance companies to issue this statement. I think the government should find a way to force the investors to actually read the product brochure.

While dealing with an insurance agent, you need to understand this. Insurance agent is like any other sales man. He is there to make a sale. And like any other salesman, he will try to make the sale with hook or crook. I am not trying to say he will be lying through his teeth to make the sale. But most of the facts would be twisted enough to give a wrong impression about the product.

You must have heard all this from your insurance agent.

• You just need to pay for the first three year.
• This product gives 275% guaranteed return.
• This product comes with a jump start bonus.
• After three years if you want you can withdraw the investment.
• He will also show you a illustration indicating  the fund value with 6% and 10% return.

Although all these statements might be true. But each statement will come with a * (Conditions apply).

• In most of the schemes if you stop paying the premium after the first three years, you wont be eligible for the bonuses and guaranteed returns.
• The 275% return is over a span of 30 years. That is less than 5% per annum return, which is just equal to the post tax return of a fixed deposit. You are eligible for this guaranteed return only on maturity if all the premiums are paid.
• Jump start bonus is available if all the premium are paid and the plan is held till maturity.
• If you withdraw the money after three years, you don’t get the fund value. You will have to pay some withdrawal charges. The illustration provided to you showed the fund value and not the surrender value.
• The illustration is just for reference. The actual rate of return will be different.

When your insurance agent comes to you to sell a insurance product, ask him to give you the product brochure. If you are proactive enough ask the agent to tell you the name of the insurance product. Product brochure are download-able on the insurance companies website. Go read it. Check all the conditions that apply and then make a informed decision.

Meta: February 23rd, 2010 by Ripul Gupta
Tags:   pitfalls · ULIP · unit linked insurance plan2 Comments