An SMS I received reads [verbatim]:

Guaranteed Bonus! Investment Profit! Insurance Cover! Tax Saving! Invest in Bajaj Allianz Assured Gain. NOW min term changes 3 to 5 yrs in July. SMS BAJ2 to 98401XXXXX.

My two words: AVOID ULIPS.

Further reading:

1. Tweets on 2010-06-02
2. Tweets on 2010-04-21
3. Tweets on 2010-05-19
4. Tweets on 2010-05-27
5. What Does Your ULIP Premium Do?

Makes you poor and your agent/insurer rich.

Look what I found in my email.

A job (commission-based) that allows you to be your own boss. Life insurance consultant with LIC of India (part-time or flexi-time). The job involves prospecting, understanding life insurance needs, advising on suitable options and closing the sale. It’s a freelance marketing job with attractive commissions not only at the time of sale but also so long as policy is in force.

For example, let’s assume that you bring in a total of 6,00,000 worth of premium in a year. On an average you will earn 2,00,000 in the first year, 60,000 in the second and third years and 40,000 every year till maturity of the policies. Fantastic earnings isn’t it. The renewal commissions will form a steady stream of income. This is self employment without investment.

In the most happening Bangalore City also named Wealth Bowl of India. Come be a part of this sunrise industry growing at more than 20%.

If this interests you,

Call xxxx xxxxx,
Development Officer, LIC of India

Now you know what that money you earnestly put in that ULIP all these years is doing. It’s making you poor and your agent/insurer stinking rich.

Avoid ULIPs. I can’t say this enough times.

Further reading:

1. Tweets on 2010-02-04

Here’s a timely article featured in The Economic Times on why you shouldn’t invest in a ULIP.

Between us, D & I have a ULIP that commands a ridiculously hefty premium, provides a really laughable amount as insurance coverage, and has actually tanked in value. Ouch! Thankfully, it’s about to complete three years of tenure and we can look forward to burying it.

ULIPs = Weapons of Mass Financial Destruction. Stay away from them.

Further reading:

1. Tweets on 2010-06-19
2. What Does Your ULIP Premium Do?

Mutual funds are a grossly mis-sold, mis-positioned, and mis-communicated financial product in India — Dipen Seth, Money Today, June 25, 2009.

Add misunderstood to that list. Add Unit Linked Insurance Plans (ULIPs) to that list.

Further reading:

1. Tweets on 2010-06-02
2. Tweets on 2010-04-21
3. Tweets on 2010-05-19

A while back, reader Lakshmi wrote to me saying,

My mom is particularly concerned that my brother’s job is non-pensionable and recently she heard about the SBI Life Insurance Pension Fund. Please throw some light on this matter.

I couldn’t write back since I was held up with other work. But Lakshmi soon wrote back with this update:

About my previous questions on finance, I did some work myself. The SBI Life Insurance Plan is just a Unit-Linked Pension Plan and clearly states that the investor should bear the market risk. In short, they are saying that they’ll take our money only to lose it by investing in shares. I’ll go home and call up my aunt who suggested it in the first place.

Brilliant. I repeat my advise: Never ever invest in a financial instrument that you don’t understand. And to understand, all it takes is a little bit of research. That’s how you develop awareness.

Awareness Fridays is my new initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

Further reading:

1. Awareness Fridays: Payment of Interest on Savings Bank Accounts Will Now Be On a Daily Product Basis

I’ve previously dissected Bharti AXA’s AspireLife Unit Linked Life Insurance Plan and found it to be a terrific example for bad financial jargon, lame financial products, and lame advertising — in short a toxic financial product (as most ULIPs are).

A recent issue of MoneyToday carried an ad for Bharti AXA’s Life AspireLife Unit Linked Insurance Plan (not sure if it’s the same plan as the dissected one — notice the extra word “life”) which declares that,

For the first time ever, your ULIP premiums will never disappear.

WTF mate? How is that possible? Read the fine-print and you’ll realize that it’s not. I think they actually wanted that to read (but could not publish),

For the first time ever, your ULIP premiums will never disappear [from our (i.e. Bharti AXA's) bank account]. ROTFLMAO.

What do you think?

Further reading:

1. Tweets on 2010-04-21
2. Tweets on 2010-02-04

It’s understandable to have an insurance cover for a liability. For example: It makes perfect sense to have an insurance cover for your home loan. If you were to get into an unfortunate situation where you wouldn’t be able to repay the loan, the insurance company picks up the tab. The premium you pay for the insurance cover is worth the freedom you get from having to incessantly worry.

But I’ve never understood the concept behind insurance companies combining insurance and investment and then marketing that fact as being beneficial to you. It certainly is beneficial, albeit to the insurance company.

On one hand, you have Unit Linked Insurance Policies (ULIPs) which charge astronomical fees under complex fee structures, gamble with your money in the equity market, and scare the shit out of you. Isn’t “freedom from worry” the whole point in having insurance? With a ULIP, you’re always worried about what’s happening to your money.

On the other hand, you now have mutual funds which give you an insurance cover of up to (a classic marketing phrase) 100 times the money you handover monthly into a Systematic Investment Plan (SIP). I don’t understand why you should put money in a mutual fund to get life insurance? In this case, the mutual fund and insurance company operate under the same banner. So, where is the premium for these policies coming from? The mutual fund’s annual management expenses? I’d run away if I were to be offered this scheme. Finally, all that you need to do to get insurance is sign a “Declaration of Good Health,” which I am sure is as vaguely worded as possible to your disadvantage.

What do you think?

Further reading:

1. Tweets on 2010-02-04

A full-page Page 3 advertisement in today’s Economic Times (Bangalore edition) introduces the Wealthsurance Foundation Plan from IDBI Fortis Life Insurance Co Ltd. Obviously, with such an honestly lame name (seriously, Wealthsurance!), it has to be a Unit Linked Life Insurance Product (ULIP) in disguise — and it is!

After a hair scratching/tearing analogy with pomegranates and human embryos, the scheme [or scam?] goes on to explain that

You can protect your Plan from death, terminal illness, 17 major diseases, 13 serious accidental injuries, or any illness requiring hospitalization. Thus your Plan is not affected by sudden financial demands caused by bad kismat.

Hilarious wording. And you’re doomed if you contract that 18th major diseases or suffer that 14th serious accidental injury. Thank God, they haven’t provided us a statistics table with age-ranges, major diseases, serious accidents, and their probabilities. I’d love to meet the actuary behind this scheme [or scam?].

The footnotes are worth highlighting:

• IDBI Fortis Life Insurance Co Ltd is only the name of the Insurance Company and Wealthsurance Foundation Plan is only the name of the unit linked life insurance contract and does not in anyway indicate the quality of the contract, its future prospects or returns. [Ummm...then why should I buy this policy?]

• The various funds offered under this contract are the names of the funds and do not in anyway indicate the quality of these plans, their future prospects, and returns. [Again...why should I buy this policy?]

• IDBI Fortis Life Insurance Co Ltd has applied for the registration of Wealthsurance as a trademark with the Trademark Registry. [WTF mate?]

• IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. [What are you there for? Management fees?]

All said and done, here’s what the ad actually wanted to say:

Hand us the cash — right now. Watch us grow rich by consistently looting “management fees” from your Plan. Watch us washing our hands off any liability. Watch us waving goodbye. Thank you. Next customer please. Repeat.

Let me know if you’re brave enough to buy this policy.

Further reading:

1. Tweets on 2010-02-04

From a full-page advertisement in today’s edition of Bangalore Mirror:

Bharti AXA Life Insurance presents a unit-linked insurance plan that guarantees you return of your first year premium of up to 175% at maturity and invests up to 100% of all your subsequent premiums.

What kind of financial misguidance is that? Incredible. I am being guaranteed the return of my first year premium at maturity! Way to go Bharti AXA — you just set the benchmark for financial suckiness (a measure of how much a financial product sucks). And in case you didn’t notice, up to 175% actually means anywhere from 0% to 175%; no guarantees on what that final figure will actually be.

A classic “WTF mate?” product. And don’t forget: Unit-Linked Insurance Plans (ULIPs) are akin to playing Diwali with your hard earned cash.

Further reading:

1. Tweets on 2010-02-04

• Simplicity — in a world full of unwanted complexity — is a theme I have been exploring from the past couple of months. Trent, over at The Simple Dollar, makes a great statement with respect to investment philosophy:
  

  The simpler you make your investments, the better.

  What do you think? Anyone bought into ULIPs (Unit Linked Insurance Plans) lately? If yes, do you understand its fundamentals? In my opinion, ULIPs are right up there with sub-prime mortgage-backed CDOs (collateralized debt obligations) as Investments of Mass Destruction!

• The DNC initiative seems to be a serious one if it requires this notification from RBI.
  

  Incidentally, TRAI has advised us that the pace of registration of DSAs/DMAs engaged by banks with DoT is very slow. Banks are therefore advised to ensure that all DSAs/DMAs engaged by them register themselves with DoT as telemarketers at the earliest.