The Indian capital markets are booming, Sensex reaching dizzying heights of 70,000 points and beyond. Even those who haven’t thought of investing in a share in the last two years of a bull market are sitting up and wondering if they are missing something and should jump in.

Coming up is the JFM (January, February, March) quarter, the final quarter of a financial year when life insurance sales pitches go up several notes due to the tax incentive.

We spoke of intentionally (or well-intentioned) confusing product positioning in CoverNote in the last few weeks. Selling insurance as investment, as a tax-break and so on.

Unit-linked insurance

In this instalment let us see one more product from the insurance industry, the unit-linked insurance policy or ULIP, which is definitely among the more sought-after life insurance policy types as industry statistics show.

ULIPs bundle death cover with a market investment. The latter is much like a mutual fund. ULIPS are an easy sell because the returns from it are linked to the capital markets, a pie in the sky that will attract anybody.

Part of the premium you pay goes towards life insurance protection and the rest — usually a larger part — is invested in the capital markets according to your choice of funds.

You float higher with the market and all’s well as far as its going well. There is life insurance for your future or for your family’s protection, as well as your fund growing with the market.

There is also a tax benefit, much curtailed in the recent years by regulations in order to protect the product from being misused and the prospective policyholder from being misled.

Stock market crash

It’s when the music stops that things turn bad. When there is a stock market crash, the value of the fund crashes. This is enough to depress anybody, even professional investors.

But for somebody who made this investment to protect their children and lost value due to external factors, the shock is significant. Significant enough for the anger to turn on life insurance itself.

Because that is what the policyholder was buying when it comes to the core of it. So, if you want a life insurance policy now, buy one. Make your investments separately. Dabble in the market and take the wins and the losses.

But a product that offers multiple benefits under an umbrella is dicey. No investment product can be all things to all people. It’s a myth that is a convenient marketing tool. If you don’t know about life insurance its easy to educate yourself. But that is not the time to dabble in markets.

(The writer is a business journalist specialising in insurance & corporate history)

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