Insurance Companies bag for ULIPs

On October 21, the Insurance Regulatory and Development Authority (IRDA) had asked insurers to stop selling ULPs till November 4 on the face of alleged violations in sale of these products.Insurance Companies bag for ULIPs

On 21st October 2010, IRDA has banned all the Insurance companies to sell ULIPs. This is because the insurance companies are misselling the ULIPs to the financially unaware customers.

ULIP means Unit linked Insurance plans which are just like highly opaque mutual funds charging lots of premium allocation charges and various other kind of charges.

The main problem with ULIPs is that, they will offer you just 5 times the life insurance cover than the annual premium. Say for Example, if your annual premium is Rs.1 lakh than your ULIP will cover only Rs.5 lakhs of insurance cover which is far cry in comparison to the term insurance plans which offer Rs.50-75 lakhs of insurance cover for just Rs.5,000-10,000 of annual premium.

But most of the people in India are financially illiterate and that’s why the insurance companies are taking the advantage of this unawareness of people and mis-selling this bad financial product.

It is the urgent need of the country to regulate this financial product.

What I personally think that the government of India should also focus on increasing the financial awareness of people rather than focusing only on the regulation of the financial products.

What do you think about this?