I am using an illustration of HDFC Standard Life Insurance (ULIP) and HDFC Standard Life Insurance (Term Insurance) for comparing ULIP and Term Insurance.
HDFC Standard Life Insurance (ULIP)
I have an old quote of HDFC Standard Life Insurance for 20 premium paying years.
Yearly premium = Rs. 1,10,000
Sum Assured = Rs. 1,00,00,000
Total Charges(Mortality +Admin) in ULIP
1st Year = 33,220
5th Year = 23,451
10th year = 26,284
15th year = 31,412
20th year = 37,835
25th year = 33,649
Fund Value assuming returns of 10%
1st Year = 83,825
5th Year = 5,58,519
10th Year = 14,34,005
15th Year = 27,67,030
20th Year = 47,80,364
25th Year = 71,74,693
Cash Value on Death
1st Year = 1,00,00,000
5th Year = 1,00,00,000
10th Year = 1,00,00,000
15th Year = 1,00,00,000
20th Year = 1,00,00,000
25th Year = 1,00,00,000
HDFC Standard Life Insurance (Term Insurance)
Yearly Premium = 26,350 (25 years term plan)
Sum Assured = 1,00,00,000
Comparing Charges
From 2nd to 12th year, charges for ULIP are lower than Term Insurance. But for 13th to 25th year, the charges for term insurance is less than lifetime II. It is true that the charges for ULIP's are less during the initial years, but during the later years term insurance is cheaper than ULIP. One cannot generalise that ULIPs are cheaper than term insurance.
Comparing Death Benefit
The death benefit that is offered by both TERM and ULIP in case of death after 5/10/15/20/25 years is Rs.1 Crore. Since both ULIP and Term plan are offering the same death benefit, what happened to your invested fund value in case of death in ULIP. They just disappeared (GAYAB ho gaya).All the money you invested just disappeared. And this is the estimate of how much money disappeared based on 10% return per annum.
Mortality after 5 years = Fund value of Rs. 5,58,519 GAYAB ho gaya
Mortality after 10 years = Fund value of Rs.14,34,005 GAYAB ho gaya
Mortality after 15 years = Fund value of Rs.27,67,030 GAYAB ho gaya
Mortality after 20 years = Fund value of Rs.47,80,364 GAYAB ho gaya
Martality after 25 years = Fund value of Rs.71,74,693 GAYAB ho gaya
CONCLUSION
From the above example in ULIPs, though you think you are only paying a portion of your premium towards mortality charges, in reality you are actually paying your whole premium towards mortality charges. For this very reason, ULIPs are lot more expensive than TERM Insurance
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Are ULIPS cheaper than Term Insurance ?
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| Originally posted by :Amit | ||
| " |
HI Amit , I would like to share some of my knowledge on ULIPs . U are good in your calculations but let me inform you that charges of one Ulip differ from the other ULIP of the same the company. here arer some of my points in support of ULIPs POint 1 : Charges In your illustration ,You are comparing a ULIP plan which has a charge of 30% in the first year . But their are plans which charge on 10% in the first year. May be HDFC cannnot give you plan better than that but there are other conmpanies in the market which give such plans. Point 2 : Inflation rate inflation rate should be taken into account . It is feasible to pay less more in the initial years rather than in tha later stages as the inflation rate decreases the value of money later. Later you pay more better for you. Point 3. Fund Value In Term Plans you get either the premiums paid + bonus or nothing at maturity , depending on the type of term plan i In ULIPS you get Fund Value with 10 % bonus compounded . Point 4: Death Benefit : In many ULIP Plans you get Sum Assured + Fund Value on death In term Plan : Only fund Value Point 5: More returns You can expect much more than 10% in ULIPs for a term 30 years. My view is if an investment cannot give returns more than 20 % in equities (ULIPS ) in term of 20 years , it is not an investment at all . i suggest he can keep his money in FD. Point 6: Partial withdrawal ULIps - Liquidity Term Plan - no liquidity Point 7 : Premium holiday in Ulips No compulsory payment of premium after 3 years ,usually in all ulips
I hope my point is clear ......
Thanks |
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I think both are very different than eath other. ULIP is an investment plan, where term is a life insurance plan. You can't compare the benfits of investment plan to insurance policy. ULIP is totally depends on share market where term insurance and return of premium (TROP) is insurance policy where you get return according to pre-decide term & condtions.
Its all depend on your requirement!!
Term policies are cheaper as they cover only the risk of death happening within a specified period. In addition the premium charged depending on the age of the person insured and time of coverage required with medical examination being compulsory in most of the cases.
https://www.holisticinvestment.in/term-life-insurance-a-checklist
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