Disclaimer: These views are essentially opinions, which everyone is entitled to. That said, read through this page to see if it makes sense to you and use your discretion in the end! Caveat Emptor, as someone said in Rome, I guess?
If you’ve ever opened a bank account, taken a home loan, or just walked into a bank branch, you’ve probably been pitched a ULIP or an Endowment plan.
The pitch is always the same, and honestly, it sounds fantastic: “Why waste money on regular insurance where you get nothing back? Put ₹1 Lakh a year here instead. You get life cover, you save on taxes, and you get guaranteed returns at the end!”
This pitch is so ubiquitous, that even I got pitched this product by my relationship manager at the bank I have the savings accounts with. I had to tell him that I am, unfortunately, well informed about the financial and insurance world. He was very disappointed to hear that, I presume but he hid it perfectly well behind that laughter.
It sounds like a no-brainer. But as an AMFI-registered mutual fund distributor, I don’t want to sell these products. The paradox is that the commission for these products are extremely good, even after the regulator, regulated the commission structure multiple times in 2010, 2016, then gave back some wiggle room to the insurers in 2023 and is now mulling tightening these commission norms again in 2026!
Here is why mixing your insurance with your investments is one of the biggest wealth mistakes you can make.
Insurance and Investments do two completely different jobs
Insurance is a risk management tool. It’s an expense to protect your family from a worst case scenario. Investing, on the other hand, is how you build wealth and beat inflation.
When you force these two things into one product, you get something that is terrible at both.
The Life Cover is a Joke, Except the Joke isn’t Funny
Most of these investment linked policies offer a life cover that is about 10 times the annual premium. So, if one pays one lac rupees an year, their family gets a 10 lac rupees payout if something happens to the insured.
So, is 10 Lac rupees enough to replace your income, clear your outstanding loans, and pay for your kids’ college education?
To get a realistic cover of say, 1.5 Crore rupees through a ULIP, you’d have to pay 15 Lakhs in premium every single year. Or, you could just buy a pure Term Life policy for around 15,000 to 20,000 a year, depending on your age and actually protect your family properly.
“The new ones are much better.”
Yes, they are. The reforms did cap the charges, and modern ULIPs are definitely better than the toxic products they sold 15 years ago.
But Less bad is not the same as good.
Even with capped charges, you are still paying premium allocation fees, policy administration fees, and mortality charges. These really hurt the amount invested to the mutual fund portion of your portfolio. And this is also the reason why your overall returns on this product will be a lot lower than mutual fund returns from a similar category
Your money is Locked up
If you face a massive financial crisis or lose your job in year three, you can log into your mutual fund account and withdraw what you need to survive.
Try doing that with a ULIP. They come with a strict lock-in. This lock in is necessitated, partly due to the massive commissions paid to the insurance agent, your bank or that uncle who visits you to sell insurance (we all have that one uncle, in our lives).
If you have an emergency and stop paying your premiums, they move your money to a “Discontinued Policy Fund” earning an even more miserable 4%, and you still can’t touch it until the 5th year. Endowment plans are sometimes even worse, often locking you in for 15 to 20 years with massive surrender penalties
The fix is boring, but it WORKS!
The smartest financial strategy is usually the simplest one: Buy Term insurance and invest the rest of the 1 lac they were after
Buy a pure Term Life policy to lock in a safety net for your family. It comes at a low cost and provides more cover than the ULIP. Then, take all the money you saved by avoiding that expensive ULIP, and invest it directly into a solid mutual fund portfolio that actually matches your goals.
No hidden charges, lock-ins or returns that lose to the battle to inflation.
If you want to separate your insurance from your investments and actually look at the math, let’s talk.
The RM is probably not evil. He’s almost certainly a salaried employee with monthly targets, a manager breathing down his neck, and a product basket he’s told to push. He may also genuinely believe the pitch because that’s all he’s been trained on. The system incentivizes him to sell you this product, and the 2023 deregulation of commissions made that worse, not better. I also realize that some people want to buy this because they are convinced it is the best product for them. And that is fine too! Anything i said, does not mean that all products of this type are terrible, were terrible and will always be terrible.
