Why Insurance products may not be the best investment for you

Introduction:

ULIPs (Unit Linked Insurance Plans) are aggressively marketed by banks and insurance agents as a “2-in-1” solution offering both investment and insurance. But do they really deliver on either front effectively? While the pitch may sound convenient, the reality is far more complex — and often costly.

Let’s break down what ULIPs are, why they’re pushed so heavily, and what investors should consider before saying yes.

1. What is a ULIP?

A ULIP is a hybrid financial product that combines life insurance with market-linked investments. A portion of your premium goes toward life cover, while the rest is invested in equity or debt funds.

Sounds good on paper, right? Let’s dig deeper.

2. The Real Reason Banks Push ULIPs

It’s not your financial well-being — it’s their commission structure.

• ULIPs offer up to 30–35% of your first-year premium as commission to the selling agent.

• Even in later years, trail commissions continue.

• Contrast this with mutual funds or term insurance — where commissions are far lower and regulated.

  
  

3. The Layered Charges That Eat Your Returns

ULIPs come with a complex and opaque fee structure:

• Premium Allocation Charges (up to 5–7% in year 1)

• Policy Administration Charges

• Fund Management Charges (1.35% capped but add up)

• Mortality Charges (vary with age and coverage)

• Surrender Charges if you exit early

These eat into returns silently, especially in the first 5 years where liquidity is also restricted.

4. Lack of Transparency and Flexibility

• You don’t get to choose your fund manager

• Returns are not benchmarked clearly

• Switching funds is limited and often restricted

• Lock-in period of 5 years — unlike mutual funds, where you have flexibility with even ELSS schemes

  
  

5. Insurance Cover is Sub-Optimal

Most ULIPs offer insurance cover of 10x the annual premium, which is woefully inadequate for most families.

• A term plan offers higher coverage at a fraction of the cost

• Insurance should be for protection, not bundled with investment

  
  

6. What Should You Do Instead?

Split your needs:

• Buy a term insurance policy for protection

• Invest separately in mutual funds, PMS, bonds, etc. for wealth creationThis way, you get better transparency, flexibility, and cost efficiency — and no hidden agenda.

Conclusion:

ULIPs may sound attractive when packaged neatly at your bank branch, but they rarely align with true investor interests. At Aurivox, we believe in unbundling products, offering clear advice, and helping you build wealth with integrity.

If you’ve already bought a ULIP, don’t worry — speak to us. We can help you evaluate if it’s worth continuing or switching to a better strategy.