🚨 ULIPs: The Hidden Wealth Destroyer Banks Never Tell You


If you ask me anytime, "What is best investment option for me". My answer will be "anything other than sold by your bank or bank relationship manager"

I am sure, you must received call from your bank or any financial institution and suggested you to take this "Great Investment with 20% annual return" plan which will have Term Life Insurance, Investment in equity market and also have Tax Benefit(80C).

If you get convinced and fell into this trap by taking this plan, trust me you made an unimaginable mistake that you will regret forever.

I’m talking about ULIPs (Unit Linked Insurance Plans). Banks sell these plan by saying "It is the best plan for Investment and Insurance together". But truth is: It offer worse of both. 

So, if you’ve been pitched this plan as a "great investment", you need to read this before making any decisions.

🤔 What is a ULIP?

A ULIP, or Unit Linked Insurance Plan, is a financial product that combines life insurance with investment opportunities.

At first sight, a ULIP sounds very good and attractive because:

  • You get life insurance coverage (usually 10X of annual premium)

  • You also get to invest in equity or debt markets for growth

  • Also you will get tax benefit 

A three-in-one solution!  Insurance + Investment + Tax Benefit
Looks like:  Too good to be true? Absolutely.

💸 Why ULIPs Are Wealth Destroyers

Here’s the hard and ugly truth about ULIPs:

1. High, Hidden Charges

ULIPs come with multiple complex layers of unnecessary and bakwas (nonsense) fees:

  1. Premium Allocation Charges : This is a percentage of your premium deducted upfront to cover initial expenses like setting up the policy and processing your application. 
  2. Fund Management Charge : This fee is deducted annually for managing the underlying investment portfolio of your ULIP, typically a percentage of the fund value (around 1-1.35%). 
  3. Policy Administration Charge : This fee is deducted annually for managing the underlying investment portfolio of your ULIP, typically a percentage of the fund value (around 1-1.35%). This covers ongoing expenses related to managing your policy, like maintaining records and providing customer service.
  4. Mortality Charge : This charge covers the cost of life insurance protection offered by the ULIP and is based on factors like age, sum assured, and risk assessment.
  5. Surrender Charge : This applies if you withdraw your investment before the policy term ends and can be a percentage of the fund value.
  6. Other Charges : These may include charges for premium redirection, partial withdrawals, fund switching, and rider benefits.

 By the time these are done eating away at your money, your actual investment is much smaller than you think. You could easily lose 10–20% of your initial contributions to fees in the early years.

2. Lock-in Period Traps You

ULIPs typically have a mandatory 5-year lock-in period which is a very red alert.
If you realize after a year that it was a bad deal. Too bad—you can’t easily get your money out without paying heavy penalties. And I am 100% sure, you will regret after one or two years.

Flexibility is very important in investing. ULIPs trap you when you should have freedom. Yes, lock-in your money is also important for specific goals like Retirements, but there are better option available like NPS, PPF, EPF etc. (not at all ULIPs)

3. ULIPs VS Mutual Funds(MFs)

Because ULIPs are being sold by misguiding with Mutual funds, see the below comparison: 

Because of all the fees in ULIPs, the returns on ULIPs tend to be much much lower than if you had just invested directly in a simple mutual fund or index fund.

  • Higher returns in mutual funds
  • Every month or year you put the money in MFs is the "SIP money" but every month or year you put the money in ULIPs is called "Premium"  [dono me farak hai - Both are different]  — Premium meas you are forced to pay the money even you are in financial crisis, But you can stop your SIP if you are in financially bad conditions.
  • Mutual Funds have only one charges that is Expense Ratio which is very very low in direct mutual funds (as low as 0.1 - 0.2%)
  • No lock-in periods in mutual funds (apart from ELSS)
  • Much more control over ULIPs
  • MFs are purely investment product that builds your wealth.

Biggest truth that is being hidden is: if you stop or fail to pay the premium for ULIPs, All the benefits will be gone, like your life insurance will be lost, you will no longer getting the equity market returns — you will only get the returns of 3-4% which is less than saving accounts. 

4. Mixing Insurance and Investment is a Bad Idea

Insurance is protection. Investment is growth.
Trying to combine them in one product usually means you get the worst of both:

  • Expensive insurance (you could buy much cheaper term life insurance separately)

  • Mediocre investment returns (after charges and poor fund management)

You’re better off buying term insurance for protection and investing separately through mutual funds or ETFs for wealth creation.

🏦 How Banks Misuse ULIPs to Exploit Customers

You might surprise, How can my trusted bank will push hard for such a bad product?
Here’s the ugly reality:

  • Massive commissions: ULIPs pay banks and relationship managers very good commissions—sometimes up to 15-30% of your first-year premium.

  • Pressure for sales targets: Bank staff are pressured to push ULIPs to meet monthly sales targets.

  • Misleading marketing: They pitch ULIPs as "tax-saving investments" or "better than FDs," hiding the costs, risks, and lock-ins.

  • Taking advantages of trust: They know most people don’t fully understand financial products—and they take advantage of that.

Banks never think about what’s best for you. It’s about what’s most profitable for them.

🚀 What You Should Do Instead: Key takeaways

  • Buy a pure term insurance policy for life protection—it’s very very cheap and covers your needs. You can get 1 crore of life cover just by paying Rs. 1000/- per month.

  • Invest separately in low-cost index funds, ETFs, or mutual funds for wealth building.

  • If you look for tax saving, go for ELSS (Equity Linked Savings Scheme) — Tax Saver Mutual Fund

  • Keep your insurance and investments separate—always.

  • Be careful and cautious  of any financial product pushed hard by banks or "relationship managers."

🧠 Conclusion

So, Next time if someone suggests any investment plan with insurance, think twice and stay away from them. You can find multiple stories on internet how people are being scammed and fooled by their bankers. Read those and learn from them.

ULIPs are one of the biggest financial traps sold to the people who are financially unaware.
Don’t get fooled and put your hard-earned money into trouble.

Protect your wealth by being informed. Your future self will thank you.

Comments

Post a Comment

Popular posts from this blog

💰 How to Manage Your Money: A Guide to Personal Finance Success

Managing your money can feel you happy, comfortable, stress free. Managing money is a skill. Between bills, savings, debt, and unexpected expenses, it’s easy to feel like your paycheck disappears the second it hits your account. The good news? You don’t need to be a financial guru to get your money in order. With a few simple steps, you can take control of your finances and start building a more secure future. Here’s a straightforward guide to help you manage your money better— no jargon, no bakwas, just real tips you can start using today. 1. 📝 Know Where Your Money Is Going Before you can manage your money, you need to know / understand where your hard earn money is going, how you're spending it. Start by tracking your income and expenses for a month. Use any budgeting app, an excel sheet, or even a notebook—whatever you want. Break your expenses down into categories like: Rent - if you stay at PG or rented flat. Groceries — Day to day expenses for vegetables, paneer,...
Read more

What Is Personal Finance? A Simple Guide to Take Control of Your Money

Image
Understanding personal finance: Personal Finance simply means "the management of an individual's or a household's financial activities." It includes how you earn , spend , save , invest , and protect your money over time. The goal is to make smart financial decisions that help you meet your short-term needs and long-term goals. Key Areas of Personal Finance: 🔑 1. Income: The Foundation This is the money you earn from your job, business, investments, or side hustles. Managing your personal finances starts with understanding your income and knowing how to maximize your income. Tip: Track your income growth monthly or yearly and find ways to increase it over time. 📊 2. Budgeting: Telling Your Money Where to Go A budget helps you plan your spending so that you're not wondering where your money went at the end of the month. It ensures you're living within your means and saving consistently. Tip: Try the 50/30/20 rule — 50% needs, 30% wants, 20% savings ...
Read more

🛟 How to Build an Emergency Fund (Even If You're Living Paycheck to Paycheck)

Image
  I just want to ask one question: Are you ready to handle in such situations your life like — If your lost your job If your business shut down overnight If your medical bills goes up beyond your Mediclaim coverage. (I hope you have your medical insurance including your dependents) That means have you enough money saved to survive such conditions ( Emergency Fund )? Trust me I know the answer. Answer is "NO". One thing you all agree with me that life is very very unpredictable. Anything can happen anytime. One surprise medical bill, closing your income or layoff can destroy your entire financial health. That’s where an emergency fund comes in. It’s not just a nice-to-have—it’s a must-have for financial stability. In this post, we’ll break down exactly what an emergency fund is, why it’s important, how much you should save, and most importantly— how to actually build one (even if you're starting from zero). 💡 What Is an Emergency Fund? An emergency fund is a colle...
Read more