ULIP INSURANCE OR Looting Publice – WILL It Continue?

How ULIPs can loot you – A Real Example

Posted by Deepak Shenoy Saturday, April 14, 2007Birla Sunlife Life Insurance

I received the following mail from an anonymous commenter that I want to bring to your notice:

I’ve had a very bad experience with Birla Sunlife ULIP. My banker sold it to me without giving complete details of the hidden charges.I am planning to exit my ULIP plan. My annual premium is 70k. SA is 7 lakhs.I want to bring the hidden charges to the notice of people visting your blog so that they are aware of this and do not get hooked by a smooth sales pitch.

I have pasted the relevant extract from their latest mail below.

At present I am trying to figure out my exit plan. Your views would be helpful.

===============================
We would further like to inform you that from your premium received, we deduct a loading fee. The policy loading fee is an up-front charge recovered as a percentage of the Life Insurance Coverage Premium and varies as per the year in which the payment is made.

The same is 65 % of the base plan premium in the first policy year. This is due to high administrative expenses in the initial years of the policy, as we need to recover costs towards commissions, underwriting and other activities involved with the issuance of the policy.

Further, the loading fees would be only 7.5 % of the base plan premium in the second and third policy years and 5.0 % from the fourth policy year onwards.

Apart from the policy loading fee, following policy fees and charges will be recovered from the policy fund :

1) Charges towards the cost of insurance is deducted by cancellation of units from the fund at the prevailing unit price on a monthly basis. The annual insurance charges per thousand face amount for sample ages for healthy lives are as follows:

Sex\Age (Yrs) 20 30 40 50 60
Female 0.90 1.16 1.66 4.03 10.66
Male 1.02 1.17 2.15 5.53 13.73

2) An investment management fee not exceeding 1.5% p.a. of the fund is charged by adjustment of daily unit prices. Currently this fee is 1% p.a.3) The following policy administration fees are deducted by cancellation of units on a monthly basis :

(a) Rs 22 per month

(b) An annual charge of Rs 2.88 per thousand face amount will be deducted in the first 10 years of the policy except in the second year where it will be Rs 15.24 per thousand face amount. From the 11th year onwards this annual charge will increase subject to a maximum of 3.75% per year.

4) Service Tax @ 10% and 2% as Education Cess (Effective rate of 10.2%) on the risk premium is levied with effect from June 22, 2005 vide Government of India Notification No. 11/04-ST dated September 10, 2004. However, kindly note that the Budget 2006 has increased the service tax from 10% to 12% with education cess remaining the same at 2%. As such, the effective rate is 12.24% (12% + 2% of 12%).

I think the ULIP is the Birla Sun Life Flexi Life Plan.

The poor bloke has already lost 65% in his first year. And will lose 7.5% to 5% in further years. Plus, he’ll lose Rs. 500 per lakh as admin charges coming to Rs. 3500 per year. In the second year admin charges are special – nearly Rs. 11,000!

To put it in perspective: In year 1, he paid Rs. 70,000. Then he lost Rs. 45,500 as loading charges, Rs. 500 as admin charges. Around Rs. 1000 was paid out as risk premium plus service tax, so the total amount deducted was about 47K, so what is invested is Rs. 23,000.

Second year, he will pay 70,000 and get 7.5% loading (Rs. 5250), Rs. 10,900 as admin charges, Rs. 1000 as risk premium/service tax. That’s a total of about Rs. 17000 – means Rs. 53000 is invested.

In two years, he has paid Rs. 140,000 but only Rs. 76,000 is invested. Even if his invested amount DOUBLES in one year, he just about stands to break even. And what is his sum assured – Rs. 700,000? For a person who can pay Rs. 70 K a year, 7 lakhs is totally insufficient.

Now if this is true, it means they are telling you this:

We have no respect for your money and will try to loot you as much as possible.

Don’t fall for such tricks. Don’t buy ULIPs – specially not this Birla Sunlife ULIP.

As for my commenter – I feel for you. But it is in your best interest to say goodbye to the policy, and assume you have lost 70,000 completely. If you read the “Surrender Charges” and “Premium Discontinuance” clauses, you will find that: Even if you stop paying your premiums after year 1, they have to pay you back the invested amount minus surrender value after three years. Unfortunately, Surrender value if the policy lapses within two years is equal to one years premium (Rs. 70000). So you won’t get back anything.

But that is better than paying one more premium and losing more money.

Arvind said…
I had a similar experience with Bajaj Allianze. My father took the ploicy on my name on the recomendation of a Standard Chartered Bank executive.It was for a premium of 1 lakh per year for 3 years.Guess what the unallocated premium is for the 1st year?? 70,000/ !!!! Out of my 1 lakh payment for the first year, 70,000 is eaten up by Bajaj Allianz claiming marketing expense,agent commission,sales expense,etc etc.For the 2nd & 3 year it is about 4-6 %.But apart from that all the other expenses like FMC,Policy admin charge,mortality charge,service charge etc make me wonder

Anand sharma,ahemdabad said…
i bought a lifetime plus policy from Icici prudential through ICICI bank. i was not told about the huge allocation charges which are as high as 25% per year..i have invested 5 lacs and still my fund is lesser than principal invested since 2 years!!!i feel i have been cheated as on the same hand i have invested only 2 lacs with aviva wherein my fund has really grown upto 2.74lacs as allocation rate was 100%..this is really alarming from Icici bank side…
May 9, 2007 12:08:00 PM
Gaurav said…
Hi all,
I lately purchased Metlife ULIP plans (Accelorator and Multiplier) with annual premium of 3.5 lacs. Now I had no knowlege on ULIP and was shown such good and assuring side that I asked the executive that all I have is 3.5 Lacs as a lumsum amount and I do not want to pay premiums. He completely agreed to this and told that there is no need to pay premium for second year and third year and we will carry forward your investment as well as your income on investment. Secondly he also hid the charges of upto 40%!!!!! on the amount. I recorded the entire conversation and his ‘too good to be true’ claims in my mobile phone and invested. As expected at last, the policy had exact opposite terms and conditons (most of it which I read here, thanks to you all!). I approached Metlife and now they are delaying the entire thing by saying that submit application and wait for upto 15-30 days and all. I have clear voice recordings of the agent as well as the manager who assured refund. Please help me as to what I can do now……..I don’t want to get into consumer court matters if there is another way out.Please help me get my money back. Thanks all!

Dec 2, 2007 7:23:00 PM
Vinod said…
I am also a victim of this cheating by Birla Sunlife. I had subscribed to a Flexi plan on Birla Sunlife in March 2006 and the annual premium is 50K. I have paid a total of Rs. 1,25,142.00 as premium till date. And the shocking news is that my current fund value is around 82K only. I don’t know what type of investment is this. And why the Govt approves all these policies.Now I intend to stop paying premiums after completion of 3 years and say good bye to these people.

Oct 5, 2008 10:13:00 PM
Anonymous said…
Thanks for sharing your info on the ULIP’s, I too had invested the money 4 yrs back in Birla and the current market value is still less than the Total Investment i had made. now i am taking the money out and investing in a normal MF. The companies had marketed the ULIP to just fund there business and not formaking gains for the customers.
Mar 26, 2010 5:10:00 PM
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5 Responses to ULIP INSURANCE OR Looting Publice – WILL It Continue?

  1. irla Sunlife Saral Jeevan Policy
    Posted: 2009-02-10 by Chandrashekhar Hiremath Send email
    MisLeading
    Dear Sir,

    I am policy holder of Birla Sunlife ULIP Saral Jeevan.

    While taking policy the agent didnt tell me anything. I have invested 30000. now the fund value 15k something. till now they have incurred the administrative and service charges upto 6500.

    Now only i came to know that they are doing the business this way.

    I told them to that i am going to surrender my policy and now they are telling me is that you wont get any money by surrendering.

    I am middle class person and all my hard earned money is going in vein.

    i dont know this is the way they are playing with emotions of the people.

    Please help me out in this matter sir.
    i have policy of 333000 sum assured.
    if i surrendar it now i wont get anything out of my invested amount.

    becoz per 10k one cover.
    900*33=29700 surrendar charges.

    You tell me what should i do.

    my contact no is: 9740511339

    please find policy details herewith.

    The surrender charge is applied if and when you surrender your policy in the first 3 policy years. The amount you will receive will be the fund value less this charge. This charge is guaranteed to never increase.

    per Cover *
    Policy Policy Term
    Year 10 Years 15 Years 20 Years
    1 Rs. 1044 Rs. 936 Rs. 900
    2 Rs. 696 Rs. 624 Rs. 600
    3 Rs. 348 Rs. 312 Rs. 300
    4 onwards nil nil nil
    * Cover: sum assured in Birla Sun Life Insurance Saral Jeevan plan is available in easy Covers of Rs. 10000 each. One Cover = Rs. 10000 sum assured.

    What are the charges applicable in this policy?

    Premium Allocation Charge

    No premium allocation charge is deducted from your policy premium. This means all of your policy premium will be invested in the investment funds of your choice.

    Fund Management Charge

    The daily unit price of each investment fund is adjusted to reflect the fund management charge. We may increase this charge any time in the future subject to a maximum of 1.50% per annum for all fund options except Multiplier at 1.75% per annum.

    per annum & reflected daily in Unit Price
    Investment Fund Investment Fund
    Assure 1.00% Creator 1.25%
    Protector 1.00% Magnifier 1.25%
    Builder 1.00% Maximiser 1.25%
    Enhancer 1.00% Multiplier 1.50%

    Policy Administration Charge

    The policy administration charge will be deducted monthly by canceling units proportionately from each investment fund you have at that time.
    This charge is guaranteed to never increase for the first three years, after which it can be increased by no more than by 5% per annum since inception.

    monthly per Cover*
    Policy Policy Term
    Year 10 Years 15 Years 20 Years
    1 to 3 Rs. 29.0 Rs. 26.0 Rs. 25.0
    4 onwards Rs. 4.0 Rs. 3.0 Rs. 2.5
    plus Rs. 40 (on the first Cover only)

    Mortality Charge

    Every month we will deduct a mortality charge for providing you with the death cover. We will take these charges by canceling units proportionately from each of the investment funds at that time.
    The charge depends on the policy term as well as the age and gender of the life insured. This charge is guaranteed to never increase. Sample rates are provided for your reference.

    monthly per Cover*
    Issue Age
    25 35 45 55
    Policy Term Male
    10 Years 1.77 2.35 4.77 11.27
    15 Years 1.92 2.65 5.48
    20 Years 2.41 3.28 6.46
    Policy Term Female
    10 Years 1.73 2.04 3.73 8.76
    15 Years 1.85 2.27 4.29
    20 Years 2.33 2.84 5.12

    Please refer to the application form for the rate applicable to you.

    Surrender Charge

    The surrender charge is applied if and when you surrender your policy in the first 3 policy years. The amount you will receive will be the fund value less this charge. This charge is guaranteed to never increase.

    per Cover *
    Policy Policy Term
    Year 10 Years 15 Years 20 Years
    1 Rs. 1044 Rs. 936 Rs. 900
    2 Rs. 696 Rs. 624 Rs. 600
    3 Rs. 348 Rs. 312 Rs. 300
    4 onwards nil nil nil
    * Cover: sum assured in Birla Sun Life Insurance Saral Jeevan plan is available in easy Covers of Rs. 10000 each. One Cover = Rs. 10000 sum assured.

    Revival Charge
    The current charge for policy revival is Rs. 100. We may increase this charge at any time in the future subject to a maximum of Rs. 1, 000, subject to IRDA approval.

    IRDA Approval

    Only when specified and within stated limits, we may increase a particular charge at any time in the future. We, however, need to get prior approval from the IRDA before such charge increase is effective. Otherwise, all other charges in this policy are guaranteed to never increase during the tenure of the policy.

    What happens if I miss out paying my premiums?

    If you are unable to pay the policy premium by the due date, you will be given a grace period of 30 days during which time all insurance cover under your policy will continue.

    If you do not pay your premium within the grace period of 30 days, the following will be applicable:

    During the first three policy years – Your policy will lapse if we do not receive the entire policy premium by the end of the grace period. The insurance under your policy will cease and your fund value will be held in suspense after deduction of Surrender Charges. This net fund value will be paid out to you only at the end of the third policy year or the end of the two-year revival period, whichever is later. You can revive your policy within two-years from its lapse date (due date of unpaid policy premium) by paying all outstanding policy premiums and providing us with evidence of insurability satisfactory to us.
    If the life insured dies while the policy is not yet revived, we will pay the fund value as of the lapse date immediately and terminate the contract.

    After three completed policy years – If we do not receive the entire policy premium by the end of the grace period, then you will be given a period of two years (starting on the due date of the unpaid policy premium) to pay all outstanding premiums till date. Your policy will continue during these two years, as well as all insurance cover and charges. At the end of this two-year period, we will give you the choice to either surrender your policy or continue it without the payment of additional policy premiums. Your policy will, however, be deemed as surrendered should your fund value equals one annual policy premium.

    What if I change my decision of buying the policy?

    You will have the right to return your policy to us within 15 days from the date of receipt of the policy. We will pay the fund value plus all charges levied till date (excluding the fund management charge) once we receive your written notice of cancellation (along with reasons thereof) together with the original policy documents.

    Terms & Conditions

    Service Tax

    Service Tax and other levies, as applicable, will be levied as per the extant tax laws.
    Unit Price

    On each business day and for each investment fund, we determine the unit price by dividing the net asset value (NAV) of the investment fund at the valuation time by the number of units in existence for the investment fund in question. We publish the unit prices of all investment funds on our website http://www.birlasunlife.comas well as in the newspapers.

    The NAV is determined based on whether we are purchasing (appropriation price) or selling (expropriation price) assets in order to meet the daily transactions of unit allocations (redemptions) associated with the investment fund. When appropriation (expropriation) price is applied, the NAV of the investment fund is the market value of investment held by the fund; plus (less) the expenses incurred in purchasing (selling) assets; plus the value of current assets; plus any accrued income net of fund management charges; less the value of any current liabilities or provisions. This NAV divided by the number of units existing on the valuation date, before units are allocated (redeemed), gives the amount of money we put in to (take out of) the investment fund per unit allocated (redeemed).
    Suicide

    We will refund higher of fund value or policy premiums paid to date in the event the life insured dies by suicide, whether medically sane or insane, within one year after the issue or revival date, whichever is later.
    Section 41 of the Insurance Act, 1938

    No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer.
    Section 45 of the Insurance Act, 1938

    No policy of life insurance effected after the coming into force of this act shall, after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that statement made in the proposal or in any report of a medical officer, or referee, or friend of the life insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.
    Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent

    Regards
    Chandru

  2. Name of the Person : CHANDRASHEKAR B Hiremath
    Email ID : cbhiremath@gmail.com
    Docket No. : 68764
    Request : hi Policy no is :001969810. i have invested 30000 in 27-8-2008. The NAV was on that date is 20.84. Units allocated are 1456.08. but the system is showing 1041.28 units. I would like to know the status of this. Present NAV is 14.5. my fund value came down to 15000 for 1041.28 units. what about other ledt units.
    Read comments

  3. Rakesh Kmar [send email]
    dear plz forget ur money bcos u have no option if u surender ur policy then ur money will 0 Rs. if u continue ur policy for 3 years then u will get half amount submited by you

    saral jevan means :- its too saral to cheat people.(only for who are saral jeaven policy holder)

  4. Charu Mittal [send email]
    I also want to surrender my policy since i was also not informed of any administrative etc charges to be deducted from my premium .first of all tell me about my present asset value and how much i will receive after surrendering my policy after paying three premiums.
    policy no. is 001803139

  5. Raj gill [send email]
    I am holding a policy no-002831832(HEAD OFFICE-BIRLA SUN LIFE) in the name of MRS. RAL GILL Client ID (4590203601) (01)Dream plans-Fund coverage and(02)Dream plan-life coverage dated15/5/2009 My date of birth is 10/04/1953. It is requested that i have not recieved any HEALTH-CARD to get the facilty OF free hospitalisation in the SELECTED LIST OF HOSPITALS in the area as was ensured at the time of purchase of this policy.

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