ULIP Sale Surge: Insurer getting advantage of ignorance of buyers?

HDFC Life‘s ULIPs sales have surged 88% y-o-y to 918 Cr in Q12025. This is interesting considering the fact that ULIPs are not generally considered as either a great insurance product or a great investment product.

– ULIPs have 2 components: a life term insurance and an investment component that gets invested as per the IRDAI’s guidelines. The customer pays both for the term insurance & investment part

– The premium is extremely higher as compared to regular term insurance plans, as the cost of administration and fund management is added to the life insurance cover (mortality charge), making it Example:
– a 1Cr term cover will cost you 1500 a month, paid for 30 years, policy term – 30 years
– a 25L ULIP cover will cost you 10,000 a month, paid for 12 years, policy term – 20 years

– From an investment perspective, the policies come with a clause stating that the maximum insurance payout will be the sum assured that includes the investment value. For instance, if the ULIP fund value grows to 11.5L, exceeding the sum assured of 10L, you will just get the fund value. So instead of 21.5L, you will be entitled to just 11.5L (reference, a LiveMint coverage again)

– From an ROI perspective, a sound financial advice is against investing in ULIPs, as the same amount if invested in mutual funds will generate much much higher returns

So why is there an uptick in ULIP adoption? A simple one word answer is distribution

– There has been an increase in interest of customers towards alternatives to traditional FDs and savings schemes, and ULIPs are seen an investment tool, at par with other investment tools in the market, like MFs, bonds, stocks etc. If you see HDFC Life’s website, ULIPs are categorised as an investment product. So marketing has become easier, with the existing customer base

– Secondly, a guaranteed payout also helps the risk-averse customer’s mindset – atleast I am getting all my premium back, as against a term insurance product, where premium is gone after the term expires. The ignorance of a buyer towards better investment tools is an advantage to life insurance companies here