Continued from yesterday posts…the remaining 4 reasons…

#5 ULIPs are Very Poor Investment Vehicles:

Well for people who can reverse engineer a ULIP, there are ways to make ulip efficient. However, as a general rule, ULIP is a bad/ terrible investment. Normally it is ULIP which is sold as a child plan (assuming that the parent is the person insured). A child policy is likely to be for a smaller amount – thus eating up most of the amount in administrative charges and fees. Generally an inefficient investment instrument, a small policy with unnecessary riders, and difficult clauses makes it even worse than what a bigger policy can be.

#6 Terrible Gift

I will buy a policy when he/she is 3 and when the kid is 22 the kid can continue to pay the premium. Well you must have taken a small policy when the kid was 3 and by the kid is 22 it could not have built too much of value. Instead of getting 4% return from age 3 to age 22, if you had invested in some good shares, or even in an index fund the kid could have got a much higher return. Even if you did not know that, at least a PPF would have built good value for the kid, and he could continue if for a longer period. So do not expect your kid to jump with joy that he got a Rs. 2L ULIP policy. By the time he is 22 (assuming he is 3 now) the amount accumulated would look like peanuts. Literally.

#7 You may Yourself forget it

When a policy is very small and insignificant, it is possible that you may yourself forget that the policy exists. So in a few years time if you forgot about the policy, or did not pay the premium for a few years, the policy could have just got evaporated by the charges on a small policy.

#8 Only reason to buy Life Insurance for the kid

Only reason to buy life insurance for a very young kid is that the kid is the BREADWINNER for the family – a child artiste for example. Or when the kid is making a career and as a parent you are investing huge amounts in that kid – say a sports kid – or when your 20 year old kid is paying a fee of Rs. 20 L for engineering or medical seat. If you think that this amount is big, go and take a cheap ULIP – because a term insurance may not be available for a non earning kid. I can think of just this as the one and only reason why a child plan could be justified.

Happy shopping.