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Why You Should Not Exit ULIPs?

Published On Dec 16, 2021 10:00 AM By InsuranceDekho

The Premium Allocation Charge is withdrawn from the premium paid for ULIPs, and the remaining funds are invested for you to benefit from. The funds are allocated, and the cancellation of units deducts the mortality charges. A fall in the appropriate NAV can be used to collect the fund administration charge.

Why should you buy ULIPs?

  • Because of their transparency and flexibility, ULIPs are highly popular. You can select the fund in which you want to invest based on the level of risk you want to take.
  • You may easily move your portfolio between equities and debt funds with ULIPs. The best part about this transition is that it is tax-free!
  • You can benefit from life insurance and investing options to help you achieve your financial goals.
  • To take advantage of the tax benefits under Sections 80C and 10(10D) of the Income Tax Act, 1961, you must invest in ULIPs.

Why You Should Not Exit ULIPs?

Below are a few reasons why you must not exit a ULIP:

1. The Fund's Value May Appear To Be Attractive

It's possible that the value of your investment will improve. Market conditions were favorable, and your initial investment fund may have appreciated in value. But don't lose sight of why you bought the ULIP in the first place. You bought the ULIP to build a fund that would assist you to fulfill some significant future obligations. As a result, if you decide to withdraw right now, you will be compromising on the broader dream you have for the future

2. You May Believe The Funds Are Underperforming

It's possible that you're dissatisfied with how your money has been functioning. This may not be the case because ULIPs are transparent. On a daily basis, check the Net Asset Value (NAV) to maintain track of your portfolio. Certain charges, such as portfolio charges, administration charges, and mortality charges, stay high in the early years and are then lowered. These fees can have a significant impact on the fund's value by reducing earnings and hence lowering returns. As a result, the actual return on the funds would be relatively modest. As a result, it is preferable to keep the ULIP after the lock-in time has ended.

3. During The First Years, There Are High Charges

Premium allocation charges are deducted from ULIP premiums before they are invested. Other expenses, such as administration fees, fund management fees, funds allocation fees, and so on, are either deducted or adjusted by canceling units. The deduction is higher during the first year, but it gradually decreases with time. When the lock-in period is close to finishing, these fees become so minimal that they have no effect on the fund's value. This would imply that the amount of money invested in the ULIP during the lock-in period was little compared to the amount invested later in the years when the charges were no longer significant. As a result, if you leave the insurance after the lock-in period, your returns will be extremely low. You'd get the true returns at the conclusion of the maturity period, not immediately after 5 years.

4. Participate In The Game To Reap The Rewards

A unit investment trust (ULIP) is a type of long-term investment vehicle. After 5 years, you have the option to leave the plan, however, this is not recommended. To reap the full rewards, you must remain invested for at least 15 to 20 years. If you believe your funds are performing poorly, you can move them without incurring any income tax consequences!

Market changes have a significant impact on the performance of your ULIP. If market circumstances are volatile, rather than withdrawing from the ULIP, you can stay involved for a longer period of time until the market begins to perform well again. Also, if the market is not performing well right now, you can look at the statistics to see how ULIPs performed during the bull market.

Conclusion

So, if you've already invested in ULIPs, you should tie them to your long-term objectives and stick with them until they reach maturity. ULIPs are intended to assist you in attaining your long-term objectives and must be maintained for a minimum of 10 years. ULIPs allow partial withdrawals, which can help you get out of a financial bind. As a result, if you want to get the most out of your ULIP, make sure you stick with it to the conclusion.

Also read - Know Which ULIP Fund To Invest In?

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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