When to kiss your Ulip goodbye

When to kiss your Ulip goodbye

Policyholders who stocked up heavily on Ulips before 2008 are in a bind. Handsome returns that Ulip salespeople offered have proved to be a mirage. Nupur Anand shows how to wriggle out of the crisis

Every investor, regardless of the hue, dreams about her wealth growing manifold. Sudha Sharma is no exception. It was precisely this inner impulse that prompted her to buy three different Ulips (Unit linked insurance plans) back in 2007. As such, she had to pay `50,000 for each of those policies. But little did she realise then that she would be in for a big jolt in days to come. Three years later, when Sharma decided to check up on her investments of `4,50,000, she discovered, much to her dismay, that her investment had actually shrunk to `3,00,000. About one third of the total premium she had paid had all been wiped away. What are the options that you have? The fact is Ulips are by no means a short-term product. These are investments that may yield benefits only over the long term. So, now you know all the stories that the agent had told you were just to pocket hefty commissions. This might leave you wondering whether to ditch the policies or stay invested. “If you are stuck with a Ulip and are considering withdrawing the amount, then it may not be such a good idea. This is because Ulips are generally front-loaded which means a lot of your money would have been wiped away as commission, administration costs and so on in the first three years of the policy premium payment term. And to top it, the equity markets have not been doing well. This means if you withdraw the money now, you may get way less than what you would have had invested,” suggests Jayant Vidhwans, director at Chaitanya Financial Consultancy. The other option you could try out is to stop any further investments into the fund. “This too may not be a very good idea for two reasons – one, the equity markets have been at a low now, so it makes sense to put money into equities now. Second, the yearly fund management charges will keep eroding the investments you are making and so by the end of the term, you may not be left with much,” points out Manish Chauhan, who runs a personal finance website called www.jagoinvestor.com. However, Chauhan feels this is when the policyholder grasps the product better and wants to stay invested in the equity market. The pitfall is most of the Ulips are mis-sold to customers for a higher commission. There were times when the commissions on this instrument were as high as even up to 60% and more. The other alternative is to withdraw the money and invest it in a combination of term plans and mutual funds. This is based on the notion that the term plan will take care of your insurance needs while MFs can handle your investments. This is a mix that is preferred by most financial planners and scores above Ulips. And if you don’t want to stay invested for a time horizon of 10-15 years (the Ulip term), then this combination will also work better for you. “Though it may not be advisable to withdraw the money now once you have borne the initial cost on a Ulip, you need to look beyond. You need to take into consideration your Ulip’s fund performance also. If your policy has not been performing as well as other Ulips, then there is a strong reason for you to withdraw the money. Or if your Ulip doesn’t match mutual funds or benchmark indices, you have to take a call, withdraw the money and switch,” says Harsh Roongta, chief executive officer apnapaisa.com. No easy job However, when you set out to compare Ulip performances, you will realise that such a task may not be too easy. There are very few websites that can churn out such information, which means you may need to seek the advice of a financial planner. But here too, take guard against blindly following your agent’s advice. The best course of action will be to question before choosing to surrender on investing in any other policy.