Unit Linked Insurance Plans (ULIPs) have been around for more than a decade now. Despite their popularity, there are still a lot of myths and misconceptions surrounding them. Many people are hesitant to invest in ULIPs because of these myths. However, it is important to understand that these myths are not always true and can often lead to missed opportunities to understand what is ULIP .
In this essay, we will explore some common myths surrounding ULIPs and get these ULIP myths debunked.
The investment product that combines savings and insurance is known as a unit-linked insurance plan (ULIP). However, due to misconceptions and myths about the ULIP’s goals, liquidity, returns, functioning, and pricing, the majority of people are hesitant to invest in them.
Here, we dispel some misconceptions about ULIPS:
Myth 1: ULIPs are expensive.
Reality: Many people view ULIPs as expensive investment vehicles due to the high premium allocation and fund management fees. However, this was a thing of the past. Earlier, the charges were as high as 6-10%, but now IRDAI has brought down the annual charges to 3% for the first 10 years of holding and 2.25% for more than 10 years of holding. Now low-cost ULIPs have charged much lower than before and are affordable to all. *All savings are provided by the insurer as per the IRDAI-approved insurance plan. Standard T&C apply. Visit the official website of IRDAI for further details.
Myth 2: ULIPs are risky instruments.
Reality: ULIPs are risk instruments because the money in them is only invested in the equity market. However, funds with various objectives can be used to select the level of risk associated with ULIPs. If you want to invest conservatively, choose a debt-oriented fund, or if you like to take risks, choose an aggressive fund. You also have the choice of a balanced fund, which is a combination of equity and debt funds. Additionally, you have the choice to change funds based on your risk tolerance and time constraints.
Myth 3: ULIPs should not be used to invest extra money.
Reality: You can always top off your ULIPs when you have extra money available, not just at the beginning. The top-up premium gives the same tax advantages as monthly premiums and can be paid at any time during the life of the current ULIP policy.
Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
Myth 4: ULIPs can never be cancelled.
Reality: You are free to stop investing in ULIPs at any moment once the 5-year lock-in period has ended. You won’t need to pay any kind of surrender fees by doing this.
Myth 5: Life insurance premiums drop during volatile markets.
Reality: A common fallacy is that because ULIPs are connected to stocks, the life insurance coverage is affected by stock market results. Nonetheless, the life cover is unchanged, and ULIPs pay the greater of the fund value or the full life insurance in the event of the investor’s passing.
Myth 6: ULIPs lack health and accident insurance.
Reality: While ULIPs provide insurance coverage in addition to investments, they also include rider choices like Accidental Death Benefit (ADB), Waiver of Premium (WOP), Family Income Benefit, Hospital Cash Benefit (HCB), etc., just like any other insurance plan. One can take advantage of the partial withdrawals in these situations to cover their increased cash needs.
Myth 7: ULIPs have a guaranteed return.
Reality: ULIPs are market-linked products, and the returns are dependent on the performance of the underlying funds. There is no guarantee of returns, and investors must understand that the value of their investment can go up or down depending on market fluctuations.
Myth 8: ULIPs have a long lock-in period.
Reality: While ULIPs do have a lock-in period of 5 years, investors have the option to make partial withdrawals after the completion of this lock-in period. They can also switch between funds to manage their investment portfolio according to their financial goals and risk appetite.
A ULIP with few passengers can be the answer if you don’t want to deal with the difficulties of individual planning.
In conclusion, ULIPs are an excellent investment option for those looking to grow their money and secure their future. They offer the dual benefit of investment and insurance and can be customised to meet the needs of the policyholder. While there are several myths surrounding ULIPs, our purpose was to have the ULIP myths debunked.
With careful research and planning, ULIPs can be an effective tool to help you achieve your financial goals. So, don’t let myths hold you back from understanding what is ulip and investing in ULIPs and securing your financial future.