ULIP Myths Busted

The present concept of Unit Linked Insurance Plans (ULIPs) is nothing more than a mash-up of numerous myths. And ULIP misunderstandings are the result of widespread mis-selling of these items in the past when big fees were offered for those who distributed them in the early years.

Despite the persistent misunderstanding about the product's purpose, pricing, returns, ease of liquidity, and manner of operation, the thought of purchasing a ULIP rank low among all the investment alternatives that individuals explore. Though the definition of ULIPs is more akin to insurance than an investment choice, the rules controlling their operation have opened the way for a product that now provides systematic long-term capital appreciation. 

Premium payment convenience, low costs, tax advantages, and free switching from one fund to another to maximize returns based on market conditions have led to ULIPs being viewed as investment vehicles that yield high returns, compared to other financial instruments such as mutual funds (MFs), while also ensuring insurance coverage without additional charges.

Common Myths About ULIP and The Facts

Below are a few myths about ULIP:

• ULIPs Are Costly

No longer, in fact! Charges for ULIPs have decreased dramatically, and some have even been eliminated.

ULIPs are a complicated investing tool with a lot of overhead. People believe ULIPs are expensive since their entire premium is not invested in the unit. However, there are different dynamics involved in a ULIP to generate higher profits as well as providing life insurance, and these additional expenses merely serve to help clients receive better returns on their investment.

Furthermore, ULIP fees in newer plans are significantly lower, and some assurers marketing online ULIPs do not levy premium allocation or policy management fees. The IRDAI has also set a limit of 1.35 percent of the fund value for maximum fund administration charges, drastically lowering the cost of investing in ULIPs.

• If The Stock Market Crashes, The Insurance Coverage Will Be Cut

According to IRDAI, in the event of death or maturity, insurance providers must pay the sum assured or fund value.

Your insurance company puts a portion of your premium toward life insurance and the rest toward the linked investment instrument. In the event of the policyholder's death, the insurance company is required by contract principles and IRDAI laws to pay the sum assured or fund value, whichever is higher. In most cases, the total assured is 10 times the annual premium.

• ULIPs Are Dangerous

It depends on your risk tolerance. To get to your goal, you can either drive fast, leisurely or at a standard speed in a car. You will arrive at your destination sooner if you drive quicker, but there are some risks associated. That isn't to say that driving an automobile isn't dangerous. Similarly, you must take some chances and invest in equity-linked ULIP plans if you want to develop your wealth faster and earn larger returns. If you are risk-averse, though, you might choose to be a conservative investor and invest in debt funds, which may have lower returns but provide more stability.

• ULIPs Have A Low Rate Of Return

ULIPs have provided up to 67 percent absolute returns over five years. [1] Many investors confuse ULIPs with endowment plans and believe they provide low returns due to a lack of knowledge. ULIPs, on the other hand, has regularly given investors attractive returns. In five years, Future Generali Life Insurance's Pension Advantage Plan was able to provide investors with absolute returns of 67 percent.

• Abolition Of ULIPs Is Not An Option

It's possible! Another myth that prevents people from investing in ULIPs and reaping the triple benefits of life insurance, wealth creation, and tax reduction. There are no surrender or discontinuance charges if you cancel a ULIP after the five-year lock-in period has ended.

After the 5-year period, you can withdraw a minimum of Rs.5000 up to four times a year from the Future Generali Easy Invest Online Plan to fulfill your emergency costs. Before purchasing a ULIP, make sure you understand all of the expenses, the investment horizon, the sum assured, and your investment objectives. You will stick to your plan longer and develop a greater corpus for yourself and your loved ones if you are clear about your ambitions.

Conclusion

When it comes to investing, you have the right to the best of both worlds, and ULIPs meet these requirements. Today's ULIPs provide a fantastic opportunity for capital growth. They combine the benefits of insurance with tax savings in this way. Plus, ULIPs are more economical when purchased online, providing you more power to invest!

Also read: The Best ULIPs To Invest In 2021

Is ULIP A Risky Investment?

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.