All of us must be aware about ULIP, which are a mix of insurance and market-linked investment with in-built hefty charges eating up your returns. Some charges are for a limited number of years; other remains constant and these may be bonus and guaranteed maturity benefits. When all this comes together in a brochure, it could confuse even those who know a thing or two about investment.
Interpretation of illustrated return
To help you understand, there are tables in the brochure or illustration generated by calculators online. They tell you how much you would get accumulated amount at the end of the term, if fund grows at 10% and 6%, ironically, it is not guaranteed.  Since figures, more than description, always appear more credible, you may think that’s all you need to know. The figures, although hypothetical, lull even the smart among us into believing that is what we should expect. Having created a rigid framework of expectations for us to judge the product, insurers grab the opportunity to dress up results. This is done by excluding charges in calculations and informing the investor that this has been done in one of the various points in the fine-print. Even the smarter among us, cannot think outside the framework, even though the numbers are only illustrative and indicative. This ingenious selling idea has been mandated by the insurance regulator.
As per IRDA rules, insurance  policies with a term of 10 years or less cannot have difference between gross and net yield exceed 3%. For contracts that exceed 10 years, the difference cannot exceed 2.25%. So if the difference between gross and the net yield in a 10 year policy is 3%, you may expect return of 7% if the yield is assumed 10%. In reality, it will be much lower, because the difference between gross and the net yield does not cover non- fund related expenses such as cost of investment guarantee, mortality charges and service tax. IRDA simply permits insurers to exclude these from the net yield as they are not fund related.
Read fine-print on hidden charges
Figures shouldn’t lie, but every investor should always read the notes to the tables. Because most insurers will tell you that their table does not include a few charges that could significantly affect your returns from the scheme, depending particularly on your age. Insurers who do exclude charges often exclude the same charges across all products. Sometimes, the fine-print is also the same, word for word.
For example, service tax alone could account for 1%-2% of the total premium. Mortality charges could be low, if you are young, but can be relatively steep if you are old. Only a few policies have a guarantee charges, but, if you do pick it, there is no reason that these charges should not be factored into the calculations. Not doing so misleads the investor or gives the agent an opportunity to hide the charges which is usually around 0.5% of the annual premium.
If you are not willing to fully understand the scheme in the first place, you must go to be bothered to examine what’s written in tiny fonts.  To make matter worse, the fine-print may long ranging 400-500 words vary company to company.  If you are shopping around for a policy, you are hardly going to pore cover these words on insurers’ website. If you do, you will sometimes stumble upon some interesting information.
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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at
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