Misconceptions And Facts About ULIPs
What is unit-linked insurance plan (ULIP)? It’s a product that gives you access to both insurance and investment payout. Policyholders of this plan need to make regular premium payments to cover the investment and also insurance coverage.
This kind of insurance cum investment tool comes with a calculator. A ULIP calculator allows you as an investor to check the premium amount and estimate the ULIP returns.
It’s just that easy to invest in these plans and reap benefits. However, to enjoy the benefits of ULIPs, you need to debunk the common myths associated with them. Here are 5 such misconceptions refuted.
Myth 1: ULIPs expose you to risk
Fact: ULIP plans let you choose funds with various objectives and select them as per the level of risk you want to take. Based on your financial situation and risk appetite, you can go for a conventional or fast-growing fund. For example, if one invests in his/her 20s and has fewer financial obligations, he/she may have a higher risk appetite and choose a fast-growing fund like an equity. But if he/she is approaching retirement, the investor may prefer a non-aggressive option like a debt fund.
Myth 2: ULIPs are expensive
Fact: Long ago in 2007, ULIP plans were costly but no more. Premium charges and fund management fees have gone down a lot. IRDAI, the insurance regulator in India has capped charges at 2.25% of total yield for policies with a duration above 10 years and 3% for up to 10 years. Therefore, commission and charges in ULIPs have been considerably reduced.
Myth 3: ULIP returns are not worthwhile
Fact: ULIPs are primarily insurance products with additional benefits of investment returns. So, a valid comparison is not possible between ULIPs and pure investment options. However, you cannot get such insurance cover from any pure financial investment product. So, you can take that as a ULIP benefit and see that the returns you receive are quite competitive. What’s more, if your investment horizon exceeds 5–7 years, ULIPs are great investment options for you.
Myth 4: ULIPs are a permanent commitment
Fact: As an investor, you get the freedom to capitulate a unit-linked insurance policy after a certain period, usually 5 years from the commencement of the product. So, you need not wait for the maturity of these policies to surrender them.
Myth 5: Insurance through ULIPs is risky
Fact: As ULIPs are usually linked to the market of equities, investors often think that the sum assured would reduce with market fluctuations. But, thankfully, life cover in unit-linked insurance policies remain the same even if the market plunges. Moreover, if the policyholder dies, ULIP policies recompense the whole fund value or life cover, whichever is greater. This is an additional advantage that these policies offer.
Now that you’ve learnt the meaning of ULIP plans and corrected the misconceptions related to them, go ahead and consider investing in them. When you do so, remember to use the ULIP calculator to estimate the returns and calculate the required premium payment.
