1. Term plans look cheap in the first year. If one were to consider the overall premium paid, it will be quite a lot of money. In the given instance, the total premium outflow would be Rs.238,750/-
2. There has been repeated lies uttered by the armchair financial advisors and newspaper columnists about the commission earned by the agents on term plan and ulips. In the example taken by this author, the term plan commission earned by the agent is Rs.3343 in the first year. By the time 25 year period is thru, the agent would have earned Rs.15,280. On the contrary in case of ULIPs, over the three year period one is required to pay the premium, commission earned by the agent is Rs.7,916. Roughly about half the total premium earned.
3. In case of ULIPs, even in the worst case scenario of the fund generating a return of 8% over a 20 year time period, the initial three premiums paid is more than sufficient to cover the life insurance. But considering the fact that the fund managers of ULIP are also investing in the same equity market where the MF fund managers are putting the money, it is likely that the real rate of return would be around 15% . In this scenario, a person who would have taken the ULIP, will enjoy uninterrupted life cover as long as he wants PLUS also takes home a substantial amount of money.
4. In case of term plans, if one premium is missed the policy lapses. During the lapsation period, if the person dies, nothing is paid to the family.
