When it comes to investing in ULIPs (or any investment option), investors tend to fall for common sale pitches. Newbie investors don’t have much investment knowledge and insurance agents make the best use of it. They present pitches and don’t reveal complete information. Newbie investors tend to fall for these pitches. In this article, we will tell you about 4 most common ULIPS sale pitches that you ought to ignore.
ULIPs have topped the investment ladder and have become one of the best investment options. It has shed its reputation for being an expensive investment option. You must be wondering how? Well, the Insurance Regulatory and Development Authority of India intervened and made some regulatory changes. It transformed the ULIPs and ULIPs become one of the top-rated investment options.
After the budget announcement for the financial year 2018-2019, LTCG tax i.e. Long-Term Capital Gains advantage moved from equity & equity related mutual funds and shifted towards unit-linked insurance plans. This changed the investment game totally. Now that ULIPs are back in the investment game, insurance agents are selling ULIPs like there is no tomorrow. Mostly, they are presenting half of the information in the sales pitch and exploiting the gullibility of newbie investors. While we don’t endorse, unfair practices, but the existence of such malpractices can’t be denied. Listed below are 5 most common sales pitches that insurance agents and brokers are using to lure the investors.
Knowing these widely used sale pitches help you to escape investment related troubles. Additionally, it will help you to differentiate between selling pitches from mis-selling and make a wise investment decision.
1: The Pitch- You will have to pay a one-time premium
What they say- Basically, insurance agents/ brokers pitch in that you’ll have to pay the premium only once. You’ll get to reap the investment benefits in the long term. It is yet another sales pitch that caters especially to the investors having a long-term investments horizon
and with the aim to save taxes.
The Truth- While you are told that you will have to pay a one-time premium, in reality, you could be buying a regular premium plan with the premium periodicity spread across 20 years. Not every investor is interested in sticking to an investment plan for such a long tenure. There are some ULIPs that come comes with the facility to pay a one-time premium. If the broker/agent will actually sell you that plan, he/she will get a lesser commission as compared to regular premium ULIPs. Here, the agent/broker isn’t thinking about your benefit, he’s thinking about his benefit.
2: The Pitch- ULIP plan is a tax-saving avenue for 5 years
What they say- This is the most common sales pitch used to attract potential investors who are searching for a plan fulfilling the following requirements:
►Lock their funds for a short tenure
The Truth– “You will have to invest for 5 years only”- this pitch is used extensively. While ULIPs come with a lock-in term of 5 years, it isn’t necessary to exit after the end of the lock-in period. ULIPs attract a majority of charges during the initial 5 years. If you want best returns on investment, exiting ULIPs after the initial 5 years isn’t a good decision. ULIPs are one of the best long-term investment instruments. Don’t mistake it for a mere short-term investment instrument that comes with a tax-saving benefit.
3: The Pitch- ULIPs are just like bank FDs
What they say- It is a sales trick to lure fixed-deposit oriented investors to invest in ULIP. Here, the insurance agent/ broker pitches that a ULIP work just like an FD. Additionally, it offers insurance coverage that gives it an extra-edge. On top of that, there is tax is levied on maturity proceed from FDs. It means after tax deductions, a lower amount will be credited to the account.
The Truth – A ULIP is market-linked investment option offers investment component as well as insurance component. Contrary to the bank fixed deposits, there are no guaranteed returns. A ULIP is an equity-oriented investment instrument, while FD is a debt oriented instrument. FDs are ideal for investors having a capital preservation oriented short-term investment goal.
4: The Pitch – Buy a new better and Unit Linked Insurance Plan to get higher returns on investment
What they say- The pitch caters to the investors who already have invested in a ULIP. They try to sell this pitch fund by saying that fund in their existing ULIP has already achieved a high NAV (Net Asset Value). There is no scope for any future growth. The insurance provider has launched ULIP with a fund option that comes with a lower Net Asset Value. Additionally, the plan has the latest features. Hence, it’s good to switch to the new ULIP.
The Truth – ULIPS don’t come with a provision to switch from one ULIP to the other. The switch option is there but it is for switching one fund to the other. The uninformed investor will have to fill in the two new forms. The first one is for surrender and the second one is for a fresh application. When the existing ULIP is surrendered, it is of no good to invest in a new ULIP. It’s because of the incurred entry cost that is up to 10 percent to 12 percent of the premium.
In a Nutshell
Out of various dubious sales pitches, we have listed just four pitches. There are various other ways to mis-sell ULIPs and agents have no qualms about using the unfair means and mis-selling ULIPs. If you have been cheated, make sure to report it to the IRDAI and the insurance provider. It will enable the regulatory body to keep an eye on the malpractices and make regulatory changes securing investor’s interest.
Even if you have to go to consumer court, don’t shy from that. This will be your bit to save other investors falling in the trap of the insurance agents and brokers whose credibility is not so credible.