Are ULIPS cheaper than Term Insurance ?

Amit (Service) (457 Points)

05 January 2009  

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