Jul 11, 2007 12:32 PM
11185 Views
(Updated Oct 16, 2007 01:17 PM)
I hold two plan from ICICI - the Golden Years and the Lifetime. Golden Years is a discontinued retirement plan and Lifetime is a basic ULIP.
I have held the Lifetime plan for 4 years now. Golden years was taken in Feb 2006.
The fact is that I had stumbled on both these plans when I did not have enough knowledge on insurance and its related nuances. These plans are not bad - but there are far better ways of making your money grow.
The fact is, lets admit it, insurance is sold in India to unsuspecting folks who do not know much about finance of money management. No wonder ICICI makes such huge corpus. The way it is sold is to benefit the agent and not the consumer.
Every single agent pushes for ULIPs... and thats where they make their money. You will never see an agent pushing for schemes like Lifetime Super (no commission here) or for pure-risk insurance covers.Pure risk insurance covers is also known as term insurance.
Agents sell these plans with the promise of quick money. But any ULIP (Unit Linked Insurnace Plan) needs about ten years to be profitable for the consumer. In other words, in the first 3-4 years, most of your money goes into paying the agent and in "administrative costs". These can be as high as 20% for the first year. So even if the plan NAV grows by 20% in the first year that you join, your money does not grow because the effective growth is next to nothing. So dont expect any serious returns in the first 3-5 years, depending on the plan.
However, once this point is crossed, there can be significant growth, depending on market conditions and how the fund is managed.
Another problem is the lock-in period. If you break the policy in the mandatory period (5 years for most policies now), you get next to nothing. But in a way it is good since this leads people to invest systematically and that is a good thing.
Since they were taking such huge commissions, ICICI used to give it earlier customers option of topping up. It means other than the regular premium, you can put extra money into the policy and they will take only 1% of it as commission. But then everyone started opting for it - they would go for the bare minimum mandatory sum. These days it is 18000 per year for Lifetime. When the company saw that the agents were not making money, they stopped this! Who is the company serving? The agents or the customers? Most of the new schemes dont have any topup facility.
*What I like:
*1) The major advantage as compared to a mutual fund is the ability to switch the investment option. You have three options - maximiser, balancer, protector. You can choose any of the three or specify a custome percentage of funds that should be put in equity, bonds etc. You have the option of switching from one type to another. If the market is high and you feel it is going to go down, you can switch to balancer or protector.
Lifetime plus and such new schemes have even more number of such options. But the basic thing is same - you can specify the percentage of your corpus that should be put in various investment media they offer.
2)Online interface. https://iciciprulife.com is the website. You can check all your policies online and even pay online. Besides, you can request them for ECS, and hte money will automatically get debited from your account - you dont have to bother about putting cheques and all.
3)The lock-in period ensures people invest money and continue to do so, and they build up a good savings base in the long run.
What I dislike:
1) Agents mis-selling the product promising astronomical returns.
2) Fund performance not that great - many mutual funds perform way better.
ALTERNATIVES:
Most of these unit linked insurance plans force you to take life cover. This life cover is very very expensive, costing upto 4 times that of a pure term insurance. **Try to keep the life cover minimal and go for a separate term cover instead.
Best way to get life cover is to go for pure term covers. All insurance companies offer it, but agents never push it. In this, you pay money to cover the risk of your death for a certain sum assured. If you survive the policy duration, you get NO money back. Remember, the premiums are absurdly low. For a 50 lakh cover from Max New York, I pay only 16400 Rs per annum. ICICI covers are more expensive, and they dont insure for higher amounts. If I were to take such a cover in any ULIP, my policy amount will have to be 10 times this amount!
Go for regular Mutual Funds - there is no lock in, no insurance premium attached, and you can stop it whenever you want. Max commission they take is 2.5%. However, here dont go for agent talk - they will always push you into New Fund offers. Never invest in new fund offers. Always invest in time tested funds from respected mutual fund houses like Franklin, Fidelity, Sundaram, SBI, Reliance etc.
Keep yourself well informed. Read magazines like Outlook Money, which gives really good tips on how to manage money. In fact, any personal finance magazine can give you lots of information.
Most of the information about is what I have gathered from Outlook money, for which I have been subscribing for the past eight years. And yes, I have verified them with my experience too.
I have wilfully not gone into the details of the policies as it can be obtained from the website mentioned in the article.
Comments and suggestions are welcome!
