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Uma - I am sick and tired of reading about ’should I buy a ULIP or a MF’ kind of articles. I know people who buy both, I know people who do not buy both, I know people who swear by either one. It takes all kinds to make the world does it not?

However, here are some reasons why I am disillusioned with the industry in general. I started off as a great votary for one life insurance company which came out with plans which had AMC charges of 0.8 per cent (dramatically low) for equity funds. I jumped and bought the product. Then they came out with another double benefit plan — which was unique in its concept of paying an annuity apart from an immediate payment of the death claim. In its original form (as how I bought it) frankly it is a great product if you need life cover and your dependent prefers an annuity because he/she cannot handle investments.

However, as the product grew popular the company added a lot of unnecessary features and dramatically increased the costs. This to me was not very shocking, but unnerved me – tough to make a 30-year commitment to a client with the constant risk of changes lurking. So here are the reasons why I do not like Unit Linked Policies:

1. The terms can change
This is a complete disaster. Once you have bought a product assuming the AMC charges are 0.8 per cent you believe it will not change. However, some ‘Relationship Manager’ will show you clause 37 in font size 7 that says charges are subject to change. This can change the value proposition completely. It is like Tata Motors saying “in the 3rd year you will have to pay Rs 1.2 lakhs for servicing the Nano, and servicing is compulsory”.

2.Employees enthusiasm to buy
Many life insurance employees are lateral entrants from the mutual fund industry, or people new to the financial services industry. They interact with mutual fund agents and in great gusto start doing SIPs in mutual funds! The enthusiasm with which the employees buy mutual funds is far, far greater than their commitment to ULIPs! Those who have any life insurance have term insurance or nothing. No big employee commitment to UL products is visible. It is not to say that the employee understands the product more or less than the end user, but I find it uncomfortable if an Indica dealer moves around in a Santro or a Maruti 800!

3. Stuck to the fund manager
Sadly if a fund manager leaves, you cannot shift your funds to another unit linked plan. In most life insurance companies the equity corpus is small. This means the economies of scale do not kick in, the services of the registrar is not outsourced (so it gets more expensive) and the life company finds it expensive to hire good fund managers. However, fund managers do quit — and you have no clue as to how to react to it. It is of course easy to say ‘we have a process in place’, but look at some of the best performing mutual funds — Prashant Jain, Madhusudhan Kela, Sukumar — all have been with the same funds (schemes) for a very long period, and it helps.

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