Debunking 5 Myths About ULIP Plans
When Anita welcomed her baby boy to the world with Nikhil by his side, she knew it was about time to secure the family’s future with a life insurance plan. With so many modes of investment on offer, Anita (who already was confused) couldn’t help but take advice from a friend with sound knowledge of the field. Her friend advised her to go ahead with a Unit Linked Insurance Plan and even devised an investment plan with the help of a ULIP plan calculator. But even after knowing the benefits, the high risk and expensive factor associated with ULIPs were still making her apprehensive from taking that step.
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Just like Anita, many others fall prey to the wrong beliefs and myths that surround the performance of ULIPs. Keeping that in mind, here are some of the myths that really need to be addressed for everyone to make informed decisions.
ULIPs or Unit Linked Insurance Plans are one of the most versatile products that offer the dual benefit of insurance and investment in one instrument. Though the product is multifaceted, many misconceptions are floating in the market and minds of those with lack of proper understanding of the product. These myths are the sole reason why the idea of buying ULIPs (among all the investment opportunities) ranks low.
Now let’s move forward to the myths!
Myth 1 – ULIPs are Costly
Back in time, the high fund management charges and premium allocation made ULIPs a costly investment. However, now after the IRDAI has capped the annual charges to 3% (first 10 years) and 2.25% (more than 10 years), ULIPs have become affordable for all. However, the capping excludes life insurance cover charges. Also, now that ULIPs can be easily bought online from any of the popular insurers, the cost of buying has gone down even lower.
Myth 2 – ULIPs are Not a Good Investment Option
As discussed above, ULIP is a unique investment plan which is a combination of life cover, savings and tax benefit. In short, it provides life cover while offering an opportunity to invest and build funds. It is flexible and gives anyone the power to invest according to their risk appetite. Whether one wants to opt for large-cap funds, mid-cap funds, small-cap funds or a combination of any of these, the choice is theirs. They can even choose from the different investment funds that are on offer - equity, debts, hybrid, bonds, and market. Another good thing about ULIPs is that they are highly flexible. From changing the sum assured to premium payment terms and the payment frequency, one can do it all. Moreover, there are riders that take customisation to another level.
One thing to note when investing in ULIPs is that it is not structured to offer value in short-term, one must step-in only with a long-term goal in mind.
Myth 3 – Market Fluctuation Impacts Life Cover
This is one of the biggest myths that keep people away from investing in ULIPs. The truth is that market volatility does not have an impact on ULIP life cover, and it remains unchanged even if the market falls. In a nutshell, the life cover remains unchanged despite the fluctuation and even if the market hits an all-time low.
Myth 4 – ULIP Cannot Be Discontinued
Yes, it is true that ULIPs come with a 5-year lock-in period. However, it is not true that it cannot be discontinued once bought. There are two ways:
- Surrender the policy after the lock-in period
- Full withdrawal before maturity without any exit load or surrender charges
However, insurers do not recommend any of these unless there is a dire-straits need for money. To reap maximum benefits, ULIPs should remain active for a long-term.
Myth 5 – Switching Funds Proves Costly
Switching funds isn’t costly. As a matter of fact, many insurers like Future Generali offer a good number of free switches to their customers. Before going ahead with any insurer, it is advisable to ask for the number of free switches available to make a sound decision.
ULIPs have been around for a long time now and to be honest, they have been offering good returns as well. With a ULIP calculator by your side, you can easily draft out a suitable investment amount that matches your needs and future requirements. The ULIP calculator of reputable insurers is easy to use while with their ULIPs, you have the choice of participating in the capital markets.