Article

Universal Life Plan
June 07 , 2012

Universal Life Plans are mixed plans provided by life insurance companies, that combine life insurance with investment in 'safe' securities. They provide a nominal life cover ranging from 5-10 times your annual premium. After deducting charges for this, the rest of the premium goes into 'safe' debt-like investments that return a guaranteed 3.5 percent a year, but can closely follow the rates given by Fixed Deposits. Examples include Max New York Secure Dreams and Reliance Life Traditional Investment Insurance.

In our view, ULPs, like other insurance-cum-investment plans, only sound good on paper - they are disastrous from an overall perspective for the investor. For one, the insurance cover is less than 10 times annual premium, and is thus far too low. More importantly, the premium allocation charges currently are extremely high (as much as 30 percent of first year premium gets removed from your investment and largely goes to pay your broker), and thus make it impossible for the product to give you any useful return.

We suspect these plans have been introduced only to bypass the stringent norms being brought on Unit Linked Insurance Plans by the regulator. Hopefully, very soon the regulator will act on ULPs too and make them more customer-friendly. Till such time, you would rather stay away.

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