Pitch three: Traditional insurance-cum-investment products are cheap, and no charges are applicable.
Question: What will be the outgo from the first five years' premiums
What you should know: Having earned at least 50% of the first year's premiums as commission in the ULIP regime, insurance agents pitch traditional plans as cheaper. But even 30% of the first year's premium is high.
In comparison, mutual funds charge no fee or commission for investments up to Rs 10000. Above Rs 10000, the charge is Rs 100, and that too if the distributor route is opted for. Funds do charge a fund management fee, but that is capped at 2.5%. There are no charges for investing in bank or company fixed deposits.
Pitch four: Returns will be safe, unlike market-linked products.
Your Question: Why should I seek safety of returns in an insurance product?
What you should know: Any investment advisor worth his salt will tell you what you should seek from an insurance company is risk coverage, and not investment returns
Pitch five: You can take a loan against this policy to pay the premium
Your Question: Why should I do that? Will the loan be cheaper?
What you should know: The answer is no. The loan against an insurance policy is 1-2% cheaper than a personal loan, but the rate of return on a traditional plan of 5-6% does not justify it - you will still pay a higher interest than you will earn. Banks will give loans only up to 70% of the total premiums paid. All policies don't qualify for a loan.
Image: Indian cricketers (L/R): Suresh Raina,Virender Sehwag, Yuvraj Singh and Rohit Sharma pose as they attend a press concerence of Birla Sunlife Insurance in Bangalore on August 26, 2009.