Feedback On The ULIP Affair

Readers' Feedback On The ULIP Affair

Soundararajan V wrote

I fully agree with your view on ULIPs. It has been a day loot by insurance companies with the help of their Munnabhai (IRDA) and they have already looted the hard earned money of financial illiterates. Private sector banks are selling ULIPs more than their own product i.e fixed deposits. The main reason for the same is to boost their fee-based income. These ULIPs are sold by sales guys of banks who do not know the difference between insurance and investment. Most of these salesmen were earlier selling FMCG or soft drinks.

Very few people know that ULIP is a long term product and the holding period to make decent return is minimum 10 years. However the sales persons were selling ULIP as three year products (after October 2009 as 5 year products).

Note: I never invested any money in ULIP and also request every citizen of India to refrain from Investing in ULIPs till it is regulated by a decent regulator with investor interest in mind.

Sanjay Jain wrote

The battle of ULIPs is now a proof of the mess being the financial sector. The ministry of finance is the main culprit who gives permission to carry on trading and one fine morning, SEBI declares it’s dictatorial.

Now IRDA has to challenge this. But to me, as an investor in ULIP plans I feel cheated by the government. Why does not the government plug loop holes before more than Rs 100 crores are invested in ULIPs? Why are the LIC ULIP plans not challenged by SEBI? Why the double standards or is it a process initiated by some people with vested interests?

SEBI gives permission to companies to raise money from IPOs, when these companies vanish does SEBI take any action other then debarring the entity from the markets?

Tarun S Bangari wrote

This is great news! Congrats to SEBI for taking the bull by the horns. The bull, in the form of IRDA and all the insurance companies who blatantly continue to push ULIPs, had to be taken on head-on. Hopefully this order will not be overturned by the Finance Ministry or some other higher up government body, in case IRDA and insurance industry cartel go out for seeking ‘justice’.

Mahesh Jagdish Manghnani wrote

Thank God that SEBI took such a brave step. Even though it is the responsibility of investors to see where they are investing their hard-earned money, but let’s not forget that a majority of agents are either their friends, family members or references. So, normally hardly anybody takes efforts to study in detail the pros & cons of that investment. That’s why people need to understand that ULIP’s are nothing but a big spot in their financial planning.

Now, it would be interesting to see if the regulators remove the entire commission-based structure in the insurance industry, just like mutual funds & introduce the structure ‘ Professional Fees ’ for agents.

Suhas Vyas wrote

This is really a welcome step taken by SEBI in interest of the general public. ULIPs are mostly designed to get maximum benefit to insurance companies and agents.

The insurance component is very low and it does not serve the purpose of family protection. Investor pays his money for policy admin charges, allocation charges, fund management charges etc.

Hence insurance companies should take approval for these charges from SEBI.

Krishnan AV wrote

A welcome move by SEBI. ULIPs should have been banned much earlier. It is a weapon capable of mass destruction of personal wealth of those who opt for it.

Deepak Singh wrote

I am very happy after this. At least some regulatory body is really working for the common investor. I made a wrong decision by buying ULIP of about Rs 7 lakhs p.a. in various companies because I found the fund managers of ULIPs to be giving more returns than mutual funds. Moreover, I wanted insurance cover, since the statement, etc came so late, after about a year & half, it was too late for me to find the losses & demerits in ULIPs.

It is good if my future premiums will be diverted more to markets in NAV rather than hundreds of hidden expenses, which is there in almost all companies.

Moreover, these ULIP companies also do not correct their mistakes. Even IRDA control on them is minimal. I had an instance where I wrote to IRDA thrice but at the end of the day I only bear the blunders which these people keep repeating.

R.Varadarajan wrote

At last SEBI has acted in the interest of the hapless investors. It would have been better had this order come 5 years ago. The ULIPs are actual a rip-off with very high charges - as much as 25% of the average Premium in the first 3 years. This is cleverly manipulated and misrepresented to the clients at the time of selling. The IRDA Chairman on his own should have requested for registration of these products with SEBI - when these irregulaties would have come to light. Obviously everyone wanted to avoid and continue as usual to please the insurance companies. It appears that the IRDA Chairman actually functioned as a President of the Association of Insurance Companies, rather than a regulatory authority to look after the Policy Holders (in many cases, investors). What is the point in shedding crocodile tears for the Policy Holders now!!!

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Our Readers' Feedback On The ULIP Affair
Apr 13, 2010

Liberalization of the insurance industry has brought some innovations. ULIPS are one of them! Proponents of this “masked” product might argue that banning ULIPS might have an adverse impact on India’s infrastructure and economic development.

VR has been doing an excellent job by providing real education to the consumers. You people are real gems.

V Govindarajan wrote

I whole-heartedly support this move by SEBI.

In India, the whole business of selling insurance is a BIG fraud on the gullible public. Not a single insurance company encourages the sale of the pure insurance policy and term products. All business magazines and papers are hand in glove with this fraud. I am a keen reader of brown pages and business periodicals for the past two decades. I found mentions/recommendations about term insurance policies as passing reference only. Even good intermediaries like ICICI Direct and HDFC recommend ONLY ULIPS as insurance products. Imagine how much ULIP one has to take for getting a cover of Rs 20 lakhs - the bare minimum for a 30 year old earning Rs 3 lakh a year. It would be Rs 2 lakh a year whereas term policy would cover that for a fraction of the sum. It is atrocious for the insurance companies to charge anything more than 3% of the yearly contribution of a 30-year average person towards ALL expenses (mortality, fund management and what not!).

In this ocean of cheaters of public, I find you are a glaring exception in advising the public against mixing insurance and investment. Honesty is really a RARE commodity!! Thank you, Dhiren.

Sudhir Bhimani wrote


I have invested in ICICI Prudential Life Insurance Company Limited. But, I am happy that SEBI is trying to take them under its regime of regulation and in the long run (hopefully) will remove the entry load in all these schemes.

Today, an investor is able to save 2.25 ~ 2.50% while entering any mutual fund scheme because entry load is removed by SEBI, which was happily pocketed by agents and investors had no choice but to pay it for hardly any service. It's big money when you consider the investment of each investor over the years.

In ULIPs, the entry load for first 2~3 years is as high as 5% to 30% and this is pocketed by agents. This is nothing but looting (stealing/cheating in broad day light) the small ignorant investors who have no choice but to pay it if they want to buy ULIP.

This is going on for many years and hopefully SEBI will stop this once ULIP schemes come under its regulation.

One question still remains: why LIC ULIP scheme is also not taken into this ban? Is SEBI scared of another government concern?

Chintan Gohel wrote

Will this affect redemption of ULIPs which are nearing maturity? Will I still be able to do full/partial withdrawal of existing funds?

Please give some information on this.

A S Paranjape wrote

It is true that ULIPs need to be more transparent and come under more regulations. But it cannot be termed as fraud. If SEBI's contention of regulating investment portion of the ULIPS is upheld then it would mean 2 regulators for the same product, which may have practical difficulties. Given the past history, SEBI may remove entire commission on investment portion. Main point is how the Investor will be educated enough to understand their needs and choose right products.

Narendra N Kondajji wrote

This is a great step towards establishing a level playing field between similar investment products. With the removal of entry loads on mutual funds, insurance companies had undue advantage and they used it for maximum kill for the year ended March 2010. SEBI’s order is very bold and logical culmination of this order should result in similar disclosure norms applicable for both mutual funds and ULIPs, especially removal of embedded charges. Let the investor decide what is good for him.

When two other regulators were against embedded loads (SEBI & PFRDA), only IRDA was swimming against the reformation tide. Will it now swim with the current or against it? It is strange that the biggest of life insurance companies is not in SEBI’s list. Is it because of its special status under a separate act?

Rajkumar Bihani wrote

I appreciate SEBI's action on the ULIPs. All private insurance companies’ agents are selling in a wrong manner and miss-selling without disclosing the charges properly.

This step is taken to protect the interest of Insurance Policy Holders.

Rishi Poddar wrote

Every time I contacted an insurance agent to buy a term policy for myself or my wife in the past few years, the insurance agent tried to sell me a ULIP instead. Even though I made it clear to all of them (they represented different insurance companies) that I preferred keeping my insurance and investment needs separate from each other, inevitably they would try to convince me to buy a ULIP. It was clear to me that these insurance companies are not interested in providing life cover but making money on investments. It is indeed surprising that IRDA has failed to rein in this malpractice after so many years and SEBI must be applauded for the action taken.

Arpan Majumdar wrote

Did SEBI ban LIC's Wealth Plus or any other ULIPs of LIC? If not, what may be the reason(s) for that?

S.Goyal wrote

To call ULIPs a fraud does not make any sense. From January 1, 2010 IRDA has already taken necessary steps to protect consumer interests by ensuring that all ULIPs with more than 10 years duration give a return which does not charge more than 2.25%.

Insurance Products are long term products which deliver to meet life goals by providing both insurance and good growth potential.

This seems more of a fight between two regulators: SEBI and IRDA, rather than protecting and serving the interests of small retail customers.

By dictating that insurance companies cannot accept insurance premiums even for existing policies, who get hurt - retail insurance policy customers. An Insurance Policy is a Contract between a Policy Holder and an Insurance Company. Can one Government Regulator ask all these companies which do not fall under its jurisdiction to nullify those lakhs of contracts? Does SEBI think it is the only Protector of Customer Interests? Was it sleeping for the last 6 years when ULIPS were introduced? The Finance Ministry and Government of India should intervene in this matter immediately to protect small Insurance Policy Customers like us.

If we really wish to protect the interests of customers, our focus has to be on educating them and may be enforcing through law the need for Insurance Policies which do not allow any Plans of less than 10 Years.

Let me also say at the same time if Long Term ULIP Policies are considered, these are far superior in serving the client needs than the traditional policies which do not give adequate insurance coverage and on survival give returns which are in 4 to 6% CAGR range.

Ruxton Vaz wrote

I was advised into taking my first ULIP policy three years ago. That was the first of four ULIPs that were miss-sold to me. But fortunately due to websites like yours and moneycontrol, I realized that whatever was said to me by the agent was false. The reason behind the miss-sale was his huge commission. I, as a common man, realized what was going on... so I guess big banks with professionals in them must know these things..... or maybe they came out with this thing called ULIP to dupe innocent Indians. Since that day I realized what a ULIP truly means, instead of mixture of investment and insurance, it’s a mixture of fraud and day light robbery from the banks and insurance companies.

Hats off to SEBI and to the Value Research team who have always been a staunch and vocal critic of the ULIP fraud.

Rajat Gupta wrote

It was just a matter of time that action was taken on ULIPs. IRDA (the so called regulator) has been sleeping all these years and currently SEBI is doing what IRDA should have done. One thing is for sure, at least SEBI is thinking about protection of customer interest.

Isn’t protection of customer interest IRDA's foremost duty? IRDA has been non - existent as an Insurance Regulator all these years. I am sure the huge Insurance lobby will not relent so easily but surely the customers will become more and more aware as this battle intensifies.

The day is not far when lucrative commissions to agents on these cheezy policies will become a thing of the past. Ahem SEBI!!!!!

source: valueresearch