ULIP Trap: 3 Tricks That Cost You ₹Lakhs

Many investors unknowingly buy a new ULIP thinking they are switching funds inside their existing policy. This mistake can lock up your money for years and cost lakhs in hidden charges.

Here's what happened: Advisors sometimes present a new ULIP as a simple 'fund switch' inside your existing policy — it is not the same thing at all.. A new ULIP starts a fresh 5-year lock-in, new premium commitment, and a fresh set of charges like premium allocation and policy administration fees.. IRDAI rules require insurers to provide a clear benefit illustration, but many buyers skip reading it and sign based on verbal promises..

What you should do: Ask your advisor for the policy number in writing — a fund switch never generates a brand-new policy document or proposal form.. Check if you are signing a fresh proposal form; any new ULIP purchase requires your signature on a new application, which is a red flag for misrepresentation.. Use the free-look period (30 days for online ULIPs, 15 days for offline) to cancel without penalty if you realise you were mis-sold..

Pro tip: ULIP fund switches are completely free (IRDAI mandates at least 4 free switches per year) — if your advisor charges anything for a 'switch', you are likely being sold a new policy.