Agents package unit-linked insurance plans (Ulips) in such a manner that you believe that it is a high return generating three-year product. In reality, it’s a long-term product with high upfront costs that eat into your investments in the initial years. Therefore, at the end of three years, you get negative return. If you decide to lapse the policy, you get nothing. Here’s how your money will get eroded over the first three years.
What to do if you have a pre-2010 Ulip?
Your pre-2010 Ulip is now at least two years old and it is better for you to stay with it till maturity. You’d have figured it out by now that it is not a 3-year but a 15-year product that you need to fund every year.
Do not surrender: Do not listen to the agent if he tells you to ditch the policy and buy a new one. He wants the upfront costs yet again. Moreover, steep costs in the first three years of a Ulip reduce the value of your money, leaving very little money in the product when you surrender it.
Do not stop funding your policy: Do not listen to the agent if he tells you to stop funding the policy. Yes, the policy will continue but it will keep eating into the value left in it to service the costs each year. In year 15, nothing may be left in the policy.
Also See | Ulips (Graphic)
What you should do?
Move to a balanced fund or a full equity fund option to take benefit of long-term stock market growth. Source: Mint
Graphic by Paras Jain/Mint