Why Insurance companies charge so much allocation charge in first year?

Is their any reason other then agent commission? I had almost purchased ULIP on insistance of an agent, who completely hide the charges from me. How they are compiting with Mutual Funds, which charge only 2.25% entry load.

3 Replies to “Why Insurance companies charge so much allocation charge in first year?”

  1. ULIP in india is completely misselled as a short term product & I am happy that you saved yourself from this misselling, but most of the people only realise it after purching it.

    ULIPs are sold as a short term product but they even do not suit as a long term product due to their charges. Even the investment is recovered in 2-3 years.

    I am a fan of Mutual Fund as they give good return & has easy exit option in case you are not satisfied with return. Combination of Term insurance & Mutual fund is best for all.

  2. ULIP product investments are for long tennur, a minimum of 10years to get good return, and on long tennur ULIP gives higher return than MF, Mf charges u entry load of 2.25% everytime u invest and also fund allocation charge of another 2.25% on the amount u have earned every year. when u compare these 2 products for the term of 15 years u end up getting more return than MF.
    moreover ULIP u need to pay premium only for first 3 years and u can stop paying premium for the entire term u r coverd with LIFE Insurance. any other doubts u have , u can mail me

  3. I do partially agree with Vikilion that ULIP is better in long run (about 15 years or more) if we just calculate the charges and the return possibility. But that is true only if your ULIP gives good performance. you do not have flexibility to go for another fund ( I mean ULIP) as it will charge a huge charges in the beginning year again. you will have to stick to the same ULIP to avoid giving hefty commissions again. That means ULIP can enjoy money inflow even if they dont perform. In contrast you have the flexibility of choosing another fund in Mutual Funds at reasonable cost (Entry load). One more big advantage of mutual fund is you can diversify your portfolio according to your need by taking many mutual funds. In case of ULIP you may be able to select the proportion of equity/debit. But no ULIP offers any choice of sector or cap (to my knowledge).

    One final word. Insurance is for protection against risk. ULIP itself carries a bigger risk of non-performance, since switching to another policy (with another insurer or same insurer) is very very costly. If you can digest the risk of non-performance, you can very well go ahead with ULIP.

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