The ULIP trap: Inside India’s most mis-sold financial product
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar said ULIPs remain heavily mis-sold, with banks pushing them for high commissions and often presenting them as mutual funds. He explained that their many charges weigh on long-term outcomes and said they suit only a narrow set of investors.
What Abhishek Kumar said
Why are ULIPs so often mis-sold, especially through banks?
ULIPs remain heavily mis-sold in India. Banks push them hard because the commissions in the first year are high. They are also often presented to customers as if they were mutual funds, without the insurance part being clearly disclosed. So many buyers do not realise that they have bought an insurance policy with an investment attached, rather than a plain market-linked investment.
What tactics are commonly used to sell ULIPs to unsuspecting buyers?
The pitches I come across follow a pattern. Sellers suggest that the returns are fixed or certain, which they are not, because the money is invested in the market. They compare the ULIP only with traditional insurance plans and not with mutual funds. And they tend to target investors with little financial knowledge, particularly in smaller cities.
How do the charges in a ULIP compare with those of a mutual fund?
A mutual fund has a single expense ratio. A ULIP carries several layers of cost, including a premium allocation charge that can be steep in the first year, along with other annual charges. Because of these charges, the same yearly amount invested in an equity mutual fund can end up with a noticeably larger corpus over ten years than it would in a ULIP. The costs weigh on the long-term outcome.
Who might a ULIP actually suit?
In my view, ULIPs suit a narrow set of investors and are not sensible for most people. They can fit a person who prefers insurance and investment in one product, has a horizon of 15 years or more, and does not have the discipline to handle the two on their own. Early-career professionals who want convenience and tax benefits may also consider them, but they accept lower returns and less flexibility. For most people, the result is low insurance cover and weak returns.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on insurance
The first part of a series on unit-linked insurance plans, the article explains how they blend life cover with market investments and why they remain widely mis-sold. It covers their layered charges, five-year lock-in, regulator directions on disclosure, and the narrow group of buyers for whom they may fit.
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The ULIP trap: Inside India’s most mis-sold financial product