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I am 45 and have two kids (12 and 6). I bought Max Life Life Maker Unit Linked Investment Plan in July 2006 with a monthly premium of Rs 5,056.25. After nearly 7.5 years, I have reached a breakeven. It provides me a life cover of Rs 13.3 lakh till I continue with the policy along with an accident rider of Rs 5 lakh for 22 years. The term of the policy is 38 years, however I can redeem whenever I want to. The present value of the corpus is nearly Rs 4.5 lakh. I don't have any term insurance, but have other plans from LIC which sum up to Rs 25 lakh coverage (including this ULIP). Should I continue with this policy?
I think if we use the switch option twice a year effectively, we can make up for the charges and also help the corpus to grow in the long run. I took this ULIP to create a corpus for my daughter's marriage 12 to 13 years down the line.
-Rahul Agarwal
Although you have reached a breakeven point with your ULIP, but it took 7 long years. This is a poor show from an investment instrument, and as an insurance policy, the cover is not enough for your family of two kids. It would be a bad idea to continue with this policy because you are losing out on the opportunity to invest in higher paying instruments.
We advise readers to stay away from ULIPs because these are front-loaded policies with heavy charges in the early years. The cost of ULIPs bring down returns considerably, making them an inefficient and undesirable investment.
The option to switch into different funds can be used, but it does not reduce the fixed charges that are continuously cut from the premium. This policy deducts a flat 5 percent of your premium as the allocation charge. Apart from this, there is the fund management charge and policy administration charge to eat up the returns.
While mutual fund expense ratio generally ranges between 2 and 3 per cent, ULIPs are a far expensive option.
If we talk about the insurance protection,your life cover should be big enough to support your family until someone else takes charge of earnings. If you don't have any other source of income or assets that could be used for rental income, your present cover would not be enough.
We suggest you to surrender this policy and buy a term cover. Invest the remaining amount in diversified equity funds to accumulate for your daughter's wedding. Invest regularly through a systematic investment plan. You could start with a balanced fund if you are averse to risk in equity.
This article was originally published on January 15, 2014.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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