Unit Linked Insurance Plans (ULIPs) are often marketed as the best of both worlds—combining investment with insurance in a single product.
Zerodha Founder & CEO Nithin Kamath on Monday, August 19, shared his thoughts onthe social media platform, LinkedIn, on why he believes ULIPs are more hype than substance.
In his LinkedIn post, Kamath wrote, "ULIP sales have gone up quite a bit over the last year. I'm guessing most ULIPs are sold by banks because of the high commissions on these products. While ULIPs promise the best of both worlds, that is, both investments and insurance, the reality is that they offer the worst of both worlds. They have high commissions, and most importantly, the insurance cover you get is not enough."
Screengrab of Kamath's LinkedIn post |
Instead of opting for ULIPs, Kamath highlighted about a more straightforward and cost-effective approach and added, "You are better off separating insurance and investments by investing in direct mutual funds and buying a term insurance policy. This is much cheaper as well."
Kamath even shared a video from Zero1byZerodha, explaining why ULIPs might not be the best option and how buyers can protect themselves from falling into this and wrote, "If someone ever pitches you an ULIP, this Zero1byZerodha video explains why it is a bad idea. Link to the full video in the comments."
One of the biggest concerns Kamath raised is that many people might not even be aware they have purchased a ULIP. “By the way, many people don't even realize they have a ULIP or some other terrible insurance product. If you want some help, you can try booking a free call with Ditto Insurance,” he added further.
Netizens Reaction
To KamathKamath'son the social media platform, expressing their opinion and viewpoints on it.
A LinkedIn user wrote, "Many govt employees paid ULIP premiums for very long period without even realising their benefits. My father paid significant amount of ULIP premium in his service. And worst part is, In case you withdraw the ULIP before the expiry of its five-year lock-in period, the surrender value is treated as income and, therefore, taxed as per your applicable income tax slab."
On the other hand, on the social media platform X, formerly Twitter, a user responding to Kamath's post and wrote, "You should cover the scamming via “bonuses” also, that ULIPs give out. PS - I closed mine with Max Life recently, one that my parents had started in 2001 and were paying Rs.25,000 as annual premium. Got a total payout of <5 lakhs for it. Complete fraudsters."
Another X user added, "Private Banks are notorious for mis-selling to financially unaware people. They often sell insurance as investment product."