Common Myths About Investing In ULIP and Their Facts

Unit Linked Insurance Plan (ULIP) is an insurance and investment product that provides protection with savings. It is a widely known and recommended plan, yet the maximum people are sceptical about making the investment in ULIPs due to the misconceptions associated with its objectives, returns, liquidity, rates, and functioning. Here are some facts to clear some common myths about ULIPs.

1. ULIP Plans Are Expensive

Many people consider ULIP an expensive investment tool due to its fund management fee and high premium allocation. Earlier its charges used to range between 6% to 10%, but, this concept has lost its presence as now IRDAI has ruled to bring down the annual charges for the first 10 years of holding to 3% and 2.25% for more than 10 years of holding. Therefore, now ULIPs cost much less than before and are available at economical rates. 

2. ULIPs Are Risky Instruments

People think that since the money in ULIP plans is invested only in the equity market, therefore, it is a risky investment instrument. But, in reality, the risk associated with these plans can be chosen based on different funds with different goals. It allows you to invest in a conservative fund to settle for a debt-oriented fund or select an aggressive fund for taking risks. It also provides you with an option to opt for a mix of equity and debt fund termed as a balanced fund and a chance of switching funds based on your risk appetite and requirement. 

3. Investing Surplus Funds in ULIPs is Not Good

If you can not invest surplus funds in the beginning, you can invest any time in the top-ups when surplus funds are available. You can make the payment for the premium for the top-up anytime during the term of the existing ULIP plan and offer tax benefits the same as regular premiums.

4. ULIP Plans Cannot Be Discontinued

Once you complete the lock-in period of 5 years, you can stop investing in ULIP plans anytime and you would not have to deposit any sort of surrender fee for doing so. 

5. Life Cover Reduces with Market Volatility

A lot of people think that since the ULIPs are associated with equities, the market returns will impact the life cover. However, the life insurance cover remains the same and ULIP plans either give the entire life insurance cover or the fund value, whichever is higher, in case the policyholder dies.

6. ULIPs Don’t Offer Health And Accident Cover

Since ULIPs provide insurance coverage along with an investment option, hence, it also attains rider covers like Waiver of Premium (WOP), Accidental Death Benefit (ADB), Hospital Cash Benefit (HCB), etc. In the case of calamities, the plan allows for partial withdrawals to meet the needs.

Conclusion

ULIPs are present in the market and delivering good returns for a long time. Still, some myths float in the market which hesitates many people to invest in it. In this article, we have pointed out some myths and busted them with reality. We hope this will help you clear your doubts and encourage you to invest in ULIPs.

Must read: How Safe is it to Invest in ULIPs?

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.