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Why IRDAI bars advertising ULIPs as investment product?

Is it a 10% return if you get it on 80 % of the investment? Nope, it's just 8%! Also comparing ULIPs with Mutual Funds was the real-breaker here. Lets get in to the fine details.
Why did IRDAI restrict the advertisement of ULIPs as “Investment Product”?

On June 19, 2024, the Insurance Regulatory and Development Authority of India (IRDAI), which oversees the insurance sector in India, issued a circular prohibiting insurance companies from promoting ULIPs (Unit Linked Insurance Plans) as investment products.

Circular issued by IRDAI

ULIPs – Investment or Insurance ?

Let’s compare ULIPs to mutual funds to see how fees affect returns

Charges and conditions associated with ULIPs:

Charge TypeDescriptionCharge Range
Fund Management Charge (FMC)ULIPs have a FMC which is used to cover costs like research and fund administration and this is capped by IRDAI at 1.35% per annum on the funds invested.0.5% – 1.35% per annum
Mortality ChargeThe mortality charge covers the cost of providing the policyholder’s death benefit. It varies based on factors like age, coverage amount, and health condition.Rs 2000- Rs 10,000 per annum
Premium Discontinuance ChargesIt is a charge levied on the policyholder when he cancels the policy.Rs 5,000- Rs 15,000
Policy Administration ChargeThis charge may be levied monthly or annually and is typically applied throughout the entire policy term.Rs 300 – Rs 1,000 per month
Partial Withdrawal ChargesIt is charged when the policyholder withdraws money in between after the minimum lock-in period, but before the end of the ULIP plan.Rs 1,000 – Rs 3,000 per withdrawal

Note: The charges associated with ULIPs vary from plan to plan. To find the charges for a specific ULIP plan, please refer to the website of that plan.

Minimum Lock-in PeriodA ULIP plan has a mandatory lock-in period of 5 years, during which withdrawals are not allowed.

Reason why IRDAI Barred Advertising ULIPs as “Investment Products”

The primary reason is to prevent the mis-selling of ULIPs by insurance companies, who often market them as investment products with added insurance benefits, which is misleading.

Insurance companies were marketing ULIPs by comparing them to mutual funds, without clearly informing customers about the additional charges within ULIPs that reduce their overall returns.

A key point to note is that the returns shown by insurance companies for ULIPs are returns based only on the invested portion of the premium and not the entire premium.
₹1 lakh₹12,000+₹88,000

SUMMARY

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Reads

Why IRDAI bars advertising ULIPs as investment product?

Is it a 10% return if you get it on 80 % of the investment? Nope, it's just 8%! Also comparing ULIPs with Mutual Funds was the real-breaker here. Lets get in to the fine details.
Why did IRDAI restrict the advertisement of ULIPs as “Investment Product”?

On June 19, 2024, the Insurance Regulatory and Development Authority of India (IRDAI), which oversees the insurance sector in India, issued a circular prohibiting insurance companies from promoting ULIPs (Unit Linked Insurance Plans) as investment products.

Circular issued by IRDAI

ULIPs – Investment or Insurance ?

Let’s compare ULIPs to mutual funds to see how fees affect returns

Charges and conditions associated with ULIPs:

Charge TypeDescriptionCharge Range
Fund Management Charge (FMC)ULIPs have a FMC which is used to cover costs like research and fund administration and this is capped by IRDAI at 1.35% per annum on the funds invested.0.5% – 1.35% per annum
Mortality ChargeThe mortality charge covers the cost of providing the policyholder’s death benefit. It varies based on factors like age, coverage amount, and health condition.Rs 2000- Rs 10,000 per annum
Premium Discontinuance ChargesIt is a charge levied on the policyholder when he cancels the policy.Rs 5,000- Rs 15,000
Policy Administration ChargeThis charge may be levied monthly or annually and is typically applied throughout the entire policy term.Rs 300 – Rs 1,000 per month
Partial Withdrawal ChargesIt is charged when the policyholder withdraws money in between after the minimum lock-in period, but before the end of the ULIP plan.Rs 1,000 – Rs 3,000 per withdrawal

Note: The charges associated with ULIPs vary from plan to plan. To find the charges for a specific ULIP plan, please refer to the website of that plan.

Minimum Lock-in PeriodA ULIP plan has a mandatory lock-in period of 5 years, during which withdrawals are not allowed.

Reason why IRDAI Barred Advertising ULIPs as “Investment Products”

The primary reason is to prevent the mis-selling of ULIPs by insurance companies, who often market them as investment products with added insurance benefits, which is misleading.

Insurance companies were marketing ULIPs by comparing them to mutual funds, without clearly informing customers about the additional charges within ULIPs that reduce their overall returns.

A key point to note is that the returns shown by insurance companies for ULIPs are returns based only on the invested portion of the premium and not the entire premium.
₹1 lakh₹12,000+₹88,000

SUMMARY

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Tax Saving Strategy, Personal finance course, Finance with Dime, Financial freedom guide, Wealth-building strategies, Investing tutorials, Financial planning tools, Interactive finance classes, Finance community app, Master personal finance, Step-by-step guide to financial freedom,Tax-saving strategies', Mutual fund SIP guide, Income tax calculator,Best investment plans for 2024, NPS tax benefits, HRA tax exemption guide,Equity vs. debt mutual funds, How to file ITR online, Tax-free income sources, Old vs. new tax regime comparison, Top-performing SIPs in India, Retirement planning tips, Financial planning for millennials, Budgeting tips for professionals, Government schemes for senior citizens

Why join Dime's Tax Strategy Masterclass?

Comprehensive

Practical

Case Studies

This isn’t a normal masterclass. You will get a comprehensive hands-on experience of various “Tax Strategies” with our proven case-study based approach.

Get access to in-house built powerful Old vs. New Tax regime calculator, tax handouts, and more.
Thousands have benefited you can too!

2000+ People have already saved Taxes

Tax Saving Strategy, Personal finance course, Finance with Dime, Financial freedom guide, Wealth-building strategies, Investing tutorials, Financial planning tools, Interactive finance classes, Finance community app, Master personal finance, Step-by-step guide to financial freedom,Tax-saving strategies', Mutual fund SIP guide, Income tax calculator,Best investment plans for 2024, NPS tax benefits, HRA tax exemption guide,Equity vs. debt mutual funds, How to file ITR online, Tax-free income sources, Old vs. new tax regime comparison, Top-performing SIPs in India, Retirement planning tips, Financial planning for millennials, Budgeting tips for professionals, Government schemes for senior citizens

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