Unit Linked Insurance Plans (ULIP) is the investment product that offers savings with insurance. However most people are sceptical about investing in ULIPs because of the misconception and myths associated with the product’s objectives, liquidity, returns, functioning, and pricing. Here, we clear some of myths linked to ULIPS:
MYTH 1: ULIPs are costly.
Reality: Because of the high premium allocation and fund management charges, many people consider ULIPs as a costly investment instrument. However, this was a thing of the past. Earlier, the charges were as high as 6-10%, but now IRDAI 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 charges much lower than before and are affordable to all.
MYTH 2: ULIPs are risky instruments.
Reality: The reason that the money in ULIPs is only invested in the equity market makes it a risk instrument. However, the intensity of risk associated with ULIPs can be selected on the basis of funds with different objectives. . You can invest in a conservative fund by settling for a debt-oriented fund or opt for an aggressive fund if you are a risk-taker. It also gives you an option for selecting a mix of equity and debt fund known as a balanced fund. Additionally, you have the option of switching funds depending on your risk appetite and need of time.
MYTH 3: ULIPs are not for investing surplus funds.
Reality: If not at the beginning, you can, at any time top up the ULIPs when surplus funds are available. The top-up premium can be paid anytime during the tenure of the existing ULIP policy and offers the same tax benefits as regular premiums.
MYTH 4: ULIPs cannot be discontinued.
Reality: After completion of the lock-in period of 5 years, you can, at any time discontinue investing in ULIPs. n doing so, you will not be required to deposit any type of surrender charges.
MYTH 5: Life cover decreases with market volatility.
Reality: Many people have the misconception that because ULIPs are linked to equities, the market returns affect the life cover. However, the life cover remains the same and ULIPs either pay the complete life cover or the fund value, whichever is higher, if the investor dies.
MYTH 6: ULIPs do not have health and accident cover
Reality: Since ULIPs offer insurance cover along with investment, just like any other insurance plan it too has rider options such as Accidental Death Benefit (ADB), Waiver of Premium (WOP), Family Income Benefit, Hospital Cash Benefit (HCB), etc. In case of such extremities or calamities, one can benefit from the partial withdrawals to meet their additional cash requirements.
ULIPs have been in market since long and have been offering good returns. This modern and traditional investment mix offers flexibility of switching funds along with easy withdrawal for your current requirements making it a necessary investment tool in your financial planning. If you do not wish to get into the hassles of individual planning, a ULIP with few riders may be the solution.
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