A Unit-Linked Insurance Plan (ULIP) is a new-age financial tool that offers two-in-one benefits of life insurance coverage and investment in a single product. The premium paid towards the policy is partly invested in the equity market and debt instruments.
Why are people sceptical about investing in ULIPs?
If you compare ULIPs and mutual funds, then the latter is more popular. This is because of the intense marketing of mutual fund products and the myths surrounding ULIPs. People have several misconceptions about ULIPs due to a lack of understanding about the features, benefits, functioning of the product, and the returns associated with it. However, top performing ULIP funds are one of the best wealth creation tools. They secure the financial future of your loved ones and provide you with good returns on investment. Therefore, it becomes essential to bust the various myths associated with ULIPs.
Common myths surrounding ULIPs
Myth 1: ULIPs are costly
ULIPs were aggressively promoted when they were first introduced, and due to the high commissions involved for distributors, this resulted in increased miss-selling. Initially, a generous chunk of the premium paid by the policyholders went towards various expenses, like fund management, premium allocation, and policy administration. The Insurance Regulatory and Development Authority of India (IRDAI) intervention in the year 2010 resulted in the reduction of hefty charges from 6-10% to 1.5–2%. In today’s digital world, you can easily buy ULIPs online. Due to this, you need not pay any intermediary expenses towards premium allocation and policy administration. If these charges were restricting you from investing in ULIPs, you do not have to worry about them anymore. Start reaping the various ULIP benefits and secure your family’s future monetary requirements.
Myth 2: ULIPs are risky
Due to inadequate knowledge about the product, many people assume that ULIPs are a high-risk investment option. People believe that the premium paid towards the policy is fully invested in equity funds. So, they are unaware that part of the money also goes towards cover for life insurance. One of the vital ULIP benefits is that you can switch from one fund to another depending on the market’s situation, that too without paying any charges.
Myth 3: ULIPs yield low returns
The returns from ULIPs are dependent on the performance of the equity or debt instrument. Therefore, it becomes crucial to select the right fund. Besides this, you need to switch between funds at the correct time to maximize the returns on investment. As per estimates, the returns earned via a ULIP investment can be around 12-14% in the end.
Myth 4: Life cover of your ULIP policy decreases
Many people are worried about investing in a ULIP, as they think that the life cover will reduce if the market plunges. Just because ULIPs have a direct connection with the equity market, it does not mean that the life insurance cover is linked to the market’s volatility. In case of any untoward incident, your family will receive the total amount of life cover. If the fund value is more than the life cover, the beneficiaries will receive the higher amount.
Myth 5: Exiting a ULIP is difficult
As an investor, if you want to make the most out of your ULIP investment, it is advisable to purchase it with a long-term perspective. ULIPs come with a lock-in tenure of five years, after which you can surrender the policy. If you want to quit before the maturity of the policy, then you can do so. You will not be charged a single any amount on premature exit; instead, you will get the amount as per the fund value.
Now that the myths associated with ULIPs have been busted, it is time that you select and invest in top-performing ULIP funds to ensure your family’s financial wellbeing.