“Sir, you are investing in a mutual fund only… but here, you ALSO get insurance! Why miss out on an extra benefit?”
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This is how a banker pitched a ULIP (Unit Linked Insurance Plan) to me last week. And honestly? It was smooth. Much better than the pitches I remember from 2013.
So why did I willingly sit through it?
Because I wanted to understand — why do people, even financially aware ones, still fall for this classic trap?
Let’s unpack the slick sales narrative and expose the real picture behind ULIPs.
🎯 The Sales Pitch: Tempting, But Misleading
ULIPs are positioned as a 2-in-1 product:
You invest like a mutual fund, and you get life insurance along with it.
So it seems logical:
“Why settle for just investment or insurance when you can have both?”
But here’s what’s not said out loud — the COST of this convenience.
🧾 What They Don’t Tell You About ULIPs
1. Your Bucket Has Holes on Day One
In the first year, up to 20% of your premium might not get invested at all.
That chunk vanishes into:
- Allocation charges
- Admin fees
- Distributor commissions
So if you pay ₹2 lakh, maybe only ₹1.6 lakh actually hits the fund.
Now imagine investing in a mutual fund where ₹40,000 is shaved off before you even start. Would you ever do that?
But people still do, unknowingly, with ULIPs.
2. The Charges Don’t Stop in Year 2
In subsequent years, you might still lose 8–10% of your premium annually through:
- Fund management charges
- Policy admin charges
- Mortality charges
- Switching fees
- Rider premiums
That’s like trying to jog on a treadmill that moves backwards.
3. Locked In Emotionally (and Legally)
ULIPs have a 5-year mandatory lock-in. But the real trap is emotional.
Most people stay for 10, 15, or even 20 years. Why?
Because of the sunk cost fallacy:
“I’ve already paid for 3 years… might as well continue.”
Unfortunately, this inertia is exactly what the insurer is counting on.
4. Underperformance = Still Stuck
Even if the ULIP underperforms compared to mutual funds, investors rarely exit.
Because it’s “insurance,” people are afraid to stop midway, thinking they’ll lose coverage.
But ask yourself:
Would you continue an underperforming mutual fund just because you once committed to it?
5. Substandard Protection
The life cover in a ULIP is usually 10x your annual premium. So for ₹2 lakh/year, you get a ₹20 lakh cover.
That’s nowhere close to what your family needs if something happens to you.
For the same amount, you could buy a term plan of ₹1–2 crore and still have ₹1.9 lakh left to invest in mutual funds. With far better returns and flexibility.
💬 Questions You Should Ask Before Buying a ULIP
Next time someone pitches a ULIP to you, pause and ask:
👉 “What percentage of my premium gets invested each year?”
👉 “Can I see the past performance of the fund where my money will be invested?”
👉 “Can you show me the mandatory benefit illustration table for this policy?”
Every insurer is required to provide it. That table will often scare you more than any blog post can.
⚖️ Insurance vs Investment: Never Mix the Two
ULIPs try to blend two entirely different products into one.
But here’s the truth:
Investment is oil.
Insurance is water.
They don’t mix.
Keep your investments clean and your protection focused.
Buy term insurance for protection.
Invest in mutual funds or ETFs for wealth creation.
Each product has a specific job — let it do that.
😬 Already Trapped in a ULIP?
If you bought one years ago and are regretting it today, you’re not alone.
But here’s the silver lining:
If your lock-in period is over, consider surrendering the policy.
Yes, you might feel like you’re taking a loss — but remember: throwing good money after bad is worse.
It’s never too late to cut your losses and start fresh.
🔚 Final Thoughts
The ULIP pitch has evolved — it’s smoother, smarter, and more convincing. But at the core, it’s still built on hiding crucial information behind jargon and emotional manipulation.
As a responsible investor, your best weapon is asking the right questions.
So the next time someone tries to “bundle” investment with insurance, just smile and say:
“Thanks, but I prefer my oil and water separate.”
💡 Found this useful?
Like, share, or comment with your experience — have you ever been pitched a ULIP or fell for one? Let’s spread awareness and save others from costly mistakes.
