First obvious advice is “Do not buy ULIPs”. This obviously falls on deaf years. “Subra I knew you would say NO, so I did not ask you” is a classmate’s confession – in a different context of course!

So you should not buy a ulip. However if you have bought it, how long should you pay the premia? 30 years? 10 years?

Well…read on..

Many of the life insurance policies sold in the past few years may not see the “logical end” of the policy as perhaps intended. In the United States of America the endowment plans are called “permanent” policies. A high percentage of existing “permanent” insurance policies will not make it to the finish line. Many Indian Ulips are so poorly structured, that the client will not collect the claim amount – it would have just lapsed! 

They will fall apart before the deaths of those they insure if the insured lives a long time. Most of the premiums, will be wasted. Policy beneficiaries will receive nothing. Many policy holders will not pay the 2nd / 3rd premium and will let the policy lapse. In some cases the choice of asset class, the charges, and the withdrawals will combine to defeat the purpose of the policy.

 This is a relatively new problem for the life insurance industry. Until a few years ago in the Indian scenario there was only one type of life insurance – endowment plans with a full paying term. That is to say if you bought a 20 year endowment plan, your friendly neighborhood agent made sure that you paid the premium for 20 years.

 Consumers knew what they were buying. Agents knew what they were selling. Clearly it was a tax saving product. Nothing more. Nothing less. It was NOT an investment product, it was a savings product – so it had to be compared to a savings bank account kind of a return, not even bank fixed deposit.

 The “endowment” insurance choices in recent times have been more numerous, complex,

And by definition risky! In one form or another, most often involve combinations of endowment and term insurance. The perceived advantage is of course, a shorter pay period! The death benefit not guaranteed, its eventual payment is highly dependent on an assumed policy performance that is highly unlikely to occur. When that performance falls short and the insured lives a long time, the policy will collapse. Monitoring this risk and avoiding or minimizing it requires a greater understanding of its origins.

So if you have a ULIP plan pay for 5 years and then give it up. HOWEVER, if you need life insurance at that stage TAKE A TERM PLAN…or take a term plan now itself…and ensure that after 5 years you collect the matured amount from the life insurance company.