Are ULIPs really bad? A detailed analysis

[Lobogris]

If we pay premium only for 10 years(accelerated pay) and premium gets above 2.5l then also we get tax benefit?
The main reason which discouraged me was that we don't get both benefits insurance or investment. If something were to happen to you say after 15 years and your corpus is only 49 lakhs your family will only get insurance benefit of 50l. The whole investment corpus will be taken by the bank unlike the case if you would have done these two separately your nominee would have got both. I think this drawback is big enough to consider the tax benefits

Yes, 2.5 lakhs per year is the maximum premium limit, regardless of the term for it to be tax exempt. You raise a very valid point. That is indeed a disadvantage. I hadn’t considered it as the 50 lakhs of insurance wasn’t a factor for me. The only consolation is that the insurance premium (mortality charge) decreases as your corpus grows and would have been zero at 50 lakhs corpus value. So you could assume that you had discontinued the insurance at that point. You would get the corpus value if it were to be greater than 50 lakhs. A very valid point indeed.

 

[Lobogris]

lol wtf is this diversification you are talking about!!

Diversification into another type of product. It’s like we try different investments in different types of instruments. If I have 10 or 20 crores to invest, would I place it all in one single MF in one sector like banking or would I diversify into real estate, gold, different MFs in different sectors as well as some investments abroad?

 

[Lobogris]

If we invest same amount
ULIP = low coverage insurance + investment (bond/equity) + high administration charges + Loke in period
Term insurance + investment (equity/bond) = high coverage insurance (5-10 times than ulip) + minimal administrative charges and no lock in period.
If your investment beat inflation = good
If your investment can’t beat inflation = worthless.
Don’t justify your own logic for ulip is superior product than pure term insurance+ investment (equity/bond).

I am not worried about term insurance. On pure investment alone, a ULIP would be similar to a MF due to rax savings and return of all FMC over 25 years.

 

[Lobogris]

This is by Zerodha. Obviously, they want people to invest in MFs instead. The example given is for a ULIP at 5 years when it’s well known that the first 5 years are the worst due to initial fees. You have to look at it after at least 15 years. Secondly, insurance cover is immaterial in a ULIP. IT is only included to make the returns tax free. So that should not be a consideration. As a pure investment alone, it will equal or beat similar MFs if held to maturity. You also have the option to switch funds or move to bonds whenever you like at no cost. If my corpus is 50 lakhs and we enter a downturn that wipes 30% off the market, I can move it to a bonds whenever fund and espcape with perhaps just 10% loss compared to 30% for MFs.

 

[m4b]

lmao idk man, I will lose sanity over this. Peace out, folks, if you are reading this, don't fall into this trap. Don't ever "invest" in ULIP.

 

[Thomas244]

The point of free unlimited switching is quite important. Definitely in mf u can do nothing. Here u can switch out to debt and move back in. I t requires a bit of management on ur part that’s all.. and anyways this is just a small part of portfolio 2.5 lakhs per year

 

[shashank08]

lmao idk man, I will lose sanity over this. Peace out, folks, if you are reading this, don't fall into this trap. Don't ever "invest" in ULIP.

Completely agree..
My detailed analysis of funds and reduction in effective investment amount due to insurance/mortality/GST results in the vast difference in final corpus.

This I am saying after analyzing at least 5-6 ULIP plans from diffrent ULIP providers..

 

[m4b]

Completely agree..
My detailed analysis of funds and reduction in effective investment amount due to insurance/mortality/GST results in the vast difference in final corpus.

This I am saying after analyzing at least 5-6 ULIP plans from diffrent ULIP providers..

I did a similar thing a long, long time back while Lobogris was defending. SSV is yet to provide a brief on his ULIP return and all. Anyone can just use chatgpt to understand the policy. Upload the policy doc and provide MF info, you will have the ans.

 

[BhaiyaJi]

Tax advantage:

The entire gains would remain tax free. This directly provides a 12.5% current and likely a 20% future tax benefit as tax on equity is bound to rise. On an 80 lakh corpus, we are talking about 16 lakhs in tax benefit. Even a 50 lakh corpus means 10 lakhs saved at the likely 20% tax rate. Even at current tax rate, you would save 6 to 10 lakhs.

Afaik returns are tax free only upto 5L premium per annum policies.

 

[thanix]

The day that any life insurance amount received only by nominee upon death of policy holder is made tax free, Endowment and ULIPs will evaporate into thin air...

 

[Lobogris]

Completely agree..
My detailed analysis of funds and reduction in effective investment amount due to insurance/mortality/GST results in the vast difference in final corpus.

This I am saying after analyzing at least 5-6 ULIP plans from diffrent ULIP providers..

Please share this analysis with some figures.

 

[Lobogris]

Afaik returns are tax free only upto 5L premium per annum policies.

Up to 2.5 lakhs actually.

 

[Lobogris]

lmao idk man, I will lose sanity over this. Peace out, folks, if you are reading this, don't fall into this trap. Don't ever "invest" in ULIP.

Only because you say so! Can you provide any evidence based on data?

 

[Abhi5467]

That’s just parroting the cliches. Try getting that 2 crore term cover for 2k when you turn 40 or 50. There is no harm in having a product that combines different elements. Why is it bad? Just because you read somewhere that insurance and investment shouldn’t be mixed?

Brother is a certified yapper! It's like justifying sun rises from West. Firstly, I don't think anyone thinking of getting term insurance when you are on door of death counting your last few years. It's better to keep FDs now. Sleeping on whole life over insurance and suddenly wakes up in the 50s to feel the need. Failing to plan an insurance isn't a justification for bad products. Even banks knew it so they change names from ULIP to something Smart Protect Super Max Pro so that "Customer ko batli me utara jaye" They're now even offering Premium CCs against ULIPs...lol. I don't see it happening with term insurance. You can wait for 15 years for ULIP but can't for better MF returns ?

 

[Abhi5467]

So isn’t that true of ALL mutual funds? A ULIP is simply another mutual fund. By your logic, all the gains in the market are useless due to inflation. It’s great to invest in gold.I have fairly large holdings in gold. Here, we are talking about mutual funds.

Yes. Inflation eats away at your returns. Isn't it common sense? I see no one offering 15 year old prices for anything (talking about long term investment). Prices will always go up. We bought land for 10L 15 years ago, now the same land costs 50-60L.