Should I surrender or retain a loss-making Ulip?




High charges lead to poor returns in the initial years.
ULIP INVESTORS have a litany of woes, but the most common refrain is that the latest fund value is less than the invested amount even though the markets have been bouyant. Investors must remember that many charges on Ulips are front loaded. In the initial years, almost 30-40% of the premium goes into paying these charges. Before the Irda guidelines of 2010, some Ulips deducted as much as 60-70% of the first-year premium in charges. If your premium was 20,000, only 6,000-8,000 was invested while the rest went into paying the charges. So, even if your fund does very well and rises by 30-40% in the first year, the fund value will never be able to rise above the invested amount.

 What you should do: If you have already paid the premium for 2-3 years, don’t exit. The pain period is almost over and now the gains will start accruing. As the graphic shows, only after 10 years will the Ulip give a meaningful return. So don’t buy a Ulip if you want to exit in 3-5 years because your returns will never be up to your expectations or match the projections of the agent.

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