In my experience, 100% of the premium for a Unit-Linked Insurance Plan goes to something called an acquisition fee. Different insurance sellers appear to explain it differently:

  1. The least transparent do not mention it.
  2. The next least transparent refer to all charges (including the acquisition fee) as investment.
  3. The most transparent refer to it as the insurance component.

So where does that money actually go?

I feel it is a scam meant to cover marketing costs. The insurance part, where money paid by the customer is used by the insurance company to reinsure the customer, is a separate fee. After paying 100% of first year money to acquisition costs, the customer balance is actually less than 0; that credit is then deducted from their 3rd year premium.

Am I correct here?

  • 1
    The "investment" that is being made is basically a whole-life policy with some "variable" features that might (or might not) reduce the premium in future years, or will increase the payout after 30 years etc. Don't ever tell anyone from India (with the possible exception of @Dheer) that this deal usually is a bad idea, or that #4 is correct, or even try to explain term insurance to them. To them, the idea of paying an insurance premium and getting "nothing" in return is so horrible that they will turn a deaf year to any explanations. – Dilip Sarwate Apr 24 '16 at 13:39

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