And so the regulatory struggle over ULIPs is over. In the end, the government decided not to risk the Supreme Court examining its financial regulatory structure. It decided to change the laws to ensure that ULIPs are regulated by IRDA despite their primary nature of being investment products. To do anything else would amount to admitting the unsavoury truth about ULIPs, and the anti-investor manner in which they have been allowed to flourish.
Investors will now have to take the full responsibility of discovering the truth about this most toxic of all asset types and keeping their money safe from it. Given the enormous financial clout and the marketing hype of the insurance industry (not to speak of their tame regulator), expect no more than some cosmetic changes for insurers to claim that problems with ULIPs, if any, have been fixed.
The subterfuge over ULIP expenses is typical of what passes for facts in the insurance debate. You may have heard insurance apologists (including IRDA) claim that ULIP expenses are now down to 3 per cent or some such number. But this is the expense level that would be achieved by newer ULIP products if investors stay invested for the entire term of 10 or more years. In practice, insurance agents earn so much in the beginning that the entire sales effort (and product design) is arranged to get the investor to quit after three or five years and shift the money to another ULIP.
Next time an insurance agent approaches you with a ULIP pitch, remember that these people now have the full backing of the government and the regulations. As an investor, it’s your own battle now.