I am not even getting into ‘Ulip vs Mutual funds’ – the experts know it, right?

I am trying to see what are the mistakes they make when they buy Unit linked Insurance plans. This is not an exhaustive list, it is just on the basis of interactions that i have had with my readers and in some investment seminars that i have attended:

a. They mostly have no clue about the Premium: Coverage ratio. Most people do not know how much they are covered for. They know the monthly / annual premium. In an aggressively sold UL the sum assured is likely to be 5 times and in a less aggressively sold one about 40 times.

b. No clue about the underlying fund: Many of these people can name their mutual fund schemes, but have no clue about the underlying assets in their ulips. Just no clue. A dumb salesman happily puts all the amount in a debt fund..saying ‘why take risk’. LOL

c. No clue of underlying schemes, so obviously no clue of present or past performance. For e.g. Hdfc used to have a good fund manager, but then changed the FM. Now the performance is bad. Charges are low, but portfolio is bad, what to do?

d. Not understanding lock in: If the agent said it has a 3 year lock in, most buyers believed that they could pay the premium ONLY for 3 years. EEEEEEEEkkkkkkkkkk such people should be banned from investing itself. And some others thought since the lock in is over, it SHOULD be removed. They were helped along the way by their ever helpful RMs.

e. Switching: what is that? the only good thing (if you understand how it works) in a ULIP is the ability to switch funds from one underlying class to another. MOST of the people did not know that this facility existed.

f. The most obvious one: buying from agents / bank relationship managers who had NO CLUE about how ulips work.