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Mistakes You Should Avoid While Purchasing ULIPs

ULIPs are a popular financial tool that offers both insurance and investing benefits. ULIPs can help people achieve two financial goals: financial security for their families and wealth building.
However, before incorporating a ULIP into your financial portfolio, be sure it fits into your investing strategy. However, in order to get the most out of your ULIP investment, you must avoid making certain mistakes that could limit your capacity to maximize advantages.

Mistakes You Should Avoid While Purchasing ULIPs

Let's have a look at the mistakes you should avoid while purchasing ULIPs:

1. Selecting The Incorrect Plan

You usually have a choice of plans with a ULIP. You can choose a plan based on your desired rate of return and risk tolerance. You can consider equities-focused plans if you want a greater yield and are willing to take on more risk. Otherwise, you can choose between debt-free or debt-heavy options. Many people make the error of selecting the incorrect plan without even realizing it. Consult your financial advisor and make sure the plan fits your risk appetite and return expectations.

2. Looking At ULIPs As A Five-Year Investment

ULIPs, as you are probably aware, have a 5-year lock-in period. That does not, however, imply that you must exit your ULIP at the end of the 5-year period. You're not talking about a medium-term investment product here. The 5-year lock-in is only in place for your convenience and liquidity in the event of an emergency. You must let the ULIP run its entire term if you are primarily invested in equity funds. Remember that ULIPs are meant to be a part of your long-term financial strategy. You are essentially upsetting your long-term plan when you redeem the ULIP in 5 years.

3. A Lack Of Awareness Of The ULIP's Mission

Make sure you understand why you're purchasing the ULIP. If you only need insurance for a short period of time, term coverage will suffice. An equity fund, on the other hand, is a superior choice if you're seeking a growing investment. When you want to combine your insurance and investing under one roof for the sake of convenience, a ULIP is a way to go. In terms of convenience, tax incentives, and other benefits, the combination must outperform the two goods separately.

4. Failure To Consider The Costs Involved

In ULIPs, costs are quite important because they affect your net return and even your repayment duration. Without taking into account the time value of money, a ULIP will take almost 7-8 years to break even in bullish market conditions, and that will be your payback period. Your ULIP insurance has both apparent and invisible loads, so read the fine print to familiarise yourself with all of them. You can also consult with your advisor if you have any questions about the charges involved.

5. Selecting A Single Premium Plan

You can choose between a single premium plan and a regular investment plan in most ULIPs. An annual, half-yearly, or quarterly investment can be made on a regular basis. Your time can be determined by your financial flow. When investing at higher levels of the market, a single premium does not provide the benefit of rupee cost averaging. In addition, making frequent payments allows you to stretch your tax benefits over a longer period of time. Unless you're looking for a pure debt plan, single premium insurance should be avoided.

6. Lack Of Awareness Of ULIP Switching Flexibility

This is a typical blunder made by many investors. Even though you've committed to a debt management strategy, that doesn't mean you can't alter your mind. ULIPs, in fact, let you migrate from one plan to another without incurring any tax consequences. That does not imply that you must be irrational in your decision. You can adjust your risk appetite if you have chosen a specific plan that does not meet your risk appetite. That's all there is to it! You have always had the choice to make a decision.


A unit-linked insurance plan (ULIP) is a financial product that combines insurance and investing into a single plan. A portion of the premium is used to cover insurance costs, while the rest is invested in mutual funds chosen by the policyholder. You must exercise extreme caution before investing in such an asset.

Also read - Are ULIPs A Good Investment Option For Long Term Wealth Creation

5 ULIP Charges You Must Know About

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. 

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