Who doesn’t know what ULIP is? A Unit Linked Insurance Plan is a product provided by numerous insurance companies that, gives financiers benefits of both insurance and investment under a single integrated plan.
Despite knowing the basics of a ULIP plan, some of us have been read or informed about some myths. In this article, we will debunk those myths and clear your way to get a ULIP plan.
1. Myth – ULIPs are expensive than most investment products
Truth – ULIP policies were expensive way back in 2008. But times have changed and Fund management fees have reduced significantly, and so have the premium charges.
India’s insurance regulator [IRDAI] has capped costs of gross yield for policies with a duration of up to 10 years and 2.25 percent for those above ten years. Hence, charges and commission in ULIP plans have significantly decreased.
2. Myth – Market instability affects ULIP life cover
Truth – Life cover in ULIPs remain unaffected despite market fluctuations.
Since ULIPs are usually linked to the equity market, some policyholders believe that the sum assured would decrease if the market is down trending. This, however, is another misunderstanding.
Despite a bear market, the life cover remains unchanged even if the fund values hit an all-time low. In the case of the investor’s death, ULIPs reward the entire life cover or the fund value, whichever is higher in value.
3. Myth – ULIPs do not give good returns
Truth – ULIPs offer insurance cover and cannot be linked to pure investment options
Most people compare ULIP plans to pure investment vehicles and hence do not realise that this comparison cannot be valid. ULIPs offer insurance cover, something that no other pure financial investment product offers.
Given these advantages, you’d understand that the returns they provide are quite competitive. If you have an investment horizon for more than 5-7 years, then there is no better product then ULIPs.
4. Myth – ULIPs are risky as they are associated with equity markets
Truth – In the case of ULIPs, you can select your investment based on the level of your risk appetite and the amount of money you have.
ULIPs let you choose funds with different investment objectives while providing you with the option to select the kind and level of risk you are willing to take. Depending on your risk appetite and conditions, you can choose a conventional fund or a top-performing fund.
For example, an investor in his 20s with few financial responsibilities would be a more significant risk-taker and will choose fast-growing funds like equity. On the other hand, an investor nearing his retirement might choose a non-aggressive tactic such as a debt fund.
5. Myth – ULIPs cannot be yielded before maturity
Truth – ULIPs can be surrendered after a defined period.
This common myth surrounding ULIPs is false. As a policyholder, you have the option to surrender the policy after a determined period, which is usually five years from the start of the ULIP product.
People have preferred ULIPs for years. But, some misconceptions about them lead to the negativity around ULIP policies. Now that we have debunked some of them make sure you research, analyse and invest in the best ULIP plan that suits you.