Thanks to their benefits, ULIPshave always caught the attention of new investors since their foray into the market. ULIPsare a unique type of insurance plan that combines insurance and investment. However, there are also certain myths, which should be busted so that investors don’t lose out on the benefits of ULIPs.
Let’s look at 6 ULIP myths that are prevalent in the market.
Myth 1 -The risk is high.
This myth is to the contrary. ULIPshelp reduce the risk byallocating capital across different funds having varying objectives. The investor can select these funds based on his/her style of investing. Risk-takers can opt for an aggressive fund, while a risk-averse person can opt for a more conservative fund. The risk factor reduces considerably, as these plans offer the option of switching between funds based on your risk appetite at a specific time.
Myth 2 -They are Expensive
ULIPs are known for their cost-effectiveness, especially when purchased online. With online plans, you will usually have to pay for only two kinds of charges – Mortality charge (for the life cover amount) or Fund Management Charge. The industry regulator IRDAI has capped the Fund Management Charge at 1.35% of the fund value. The mortality charge is a nominal amount that doesn’t continue after a few years.The life cover is the difference between the available corpus on the plan and the guaranteed sum assured. Therefore, when your corpus outgrows the guaranteed sum assured, the mortality charge becomes zero. One can also choose to receive the deducted mortality charges back upon maturity. Therefore, the Fund Management Charge would be the only cost associated with your investment.
Myth 3 –The life cover gets affected by market volatility
Thelife cover aspect does not depend on market fluctuations. Even if the market plunges, the sum assured would remain unchanged. In case the policyholder doesn’t make it till the policy matures, the plan recompensesthe fund value or the entire life cover, whichever is greater.
Myth 4 – No liquidity
There is a partial withdrawal option that comes with these plans. You can opt for it after the lock-in period. It enables you to withdrawa certain part of the money after the lock-in period is over without having to pay any additional charges. The balance units not withdrawn continue to remain invested.
Myth 5 –Good returns cannot be expected on ULIPs
Returns usually depend on the performance of the market forces, especially if you are investing in a balanced or equity fund. For a more stable return profile, liquid and debt funds are better avenues. For maximum ULIP plan returns, you can choose your fund based on the time you have for your goal and your risk appetite. The right strategies, the right funds, and the right period of staying invested could have you enjoying handsome returns on plans categorised asULIPs.
Myth 6 – No surrender option before maturity
This is untrue. As an investor, you can surrender the policy after a determined lock-in period (5 years from the purchase of the ULIP product). However, you should usually avoid surrendering your policy as soon as the lock-in period ends,since they yield good returns when invested in for about 15-20 years. During this period, if you think your funds are not performing well, you can choose to switch your funds.
A Unit Linked Insurance Plan is a unique product that can not only safeguard your family, but also help your money grow in the long run. As an investor, you need to consider unit linked products in a positive light, without letting any of the above myths and other false information affect your decision.
