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Some Myths About ULIPs vs The Reality

By Sonal Upadhyay - Jul 11,2019
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Though Unit Linked Insurance Plans (ULIPs) offers the dual benefit of investment and protection in a single product with additional advantages of tax saving and flexibility, there are several misconceptions surrounding these products due to lack of complete understanding about product features & benefits.

Here, we’ve addressed some of the common myths associated with ULIPs:

Myth – ULIPs are risky because they are associated with volatile equity markets

  • Reality – ULIPs provide you with the freedom to choose the level of risk you are willing to take while making your investment. ULIPS give you the flexibility to select from among funds with varying risk profiles. Young investors can choose an aggressive/high-risk profile fund if the/she is a risk-taker. At an older age, one may also settle for a conservative fund by selecting a debt-oriented fund. Alternatively, you can go for a balanced fund (i.e., a mix of equity and debt fund). In ULIPs, you also have the option to switch between funds based on your lifestyle and changing risk appetite. For example, during periods of volatility, you can move your investment from an aggressive or balanced fund to a debt/liquid fund.

Myth – ULIPs do not provide good returns

  • Reality – ULIPs are pure investment vehicles and hence investors always miss to consider that ULIPs also provide insurance coverage, which is not available under other pure financial investment products. Considering the life insurance coverage under ULIPs, you’d realise that the returns provided by ULIPs are quite competitive.

Myth – ULIPs are not transparent and have many charges, which decreases the actual investment made in ULIPs

  • Reality – Earlier in ULIPs, out of the Rs. 100 invested, almost Rs. 60-75 could have been allocated to charges because early age ULIPs use to have multiple charges. But as per the revised guidelines of IRDA, charges in new-age ULIPs have uniform division over the policy term. Maximum capping for fund management charge has been capped by the regulator at 1.35% and other charges like premium allocation charge and policy administration charge have reduced significantly over the years.

Myth – Life coverage available under ULIPs decreases with market volatility

  • Reality – Though ULIPs are market-linked products, the belief that the life cover would decrease if the market falls is just a misconception. Despite a bearish market, the life cover stays the same – only the fund gets impacted. In case of the death of the policyholder, the entire life cover or the fund value, whichever is higher will be paid to the nominee.

Myth – ULIPs cannot be surrendered before maturity

  • Reality – This common misunderstanding surrounding ULIPs is incorrect. The investor has a choice to surrender the policy after completion of five years from the beginning of the ULIP product.

Myth – ULIP has a lock-in period of 3 years

  • Reality – As per a revised guideline by IRDA, the lock-in period under ULIPs has changed from 3 years to 5 years.

If any of these misconceptions were preventing you from getting a ULIP policy, we hope that we’ve helped you clear them all!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522