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6 Mistakes to Avoid When Investing in ULIPs

By Finserv MARKETS - Mar 12,2019
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common mistakes to avoid when purchasing ulips.

With rising economic prosperity, we Indians are getting more and more aspirational in terms of both, our life as well as our investment goals. While life insurance plans have traditionally been looked at as a tool for ensuring the financial stability of the family, innovative products such as Unit Linked Insurance Plans are also being increasingly looked at as a great tool for wealth creation.

ULIP benefits include flexibility, transparency, goal-based savings and tax saving benefits, which are among the reasons for the growing acceptance of unit linked insurance plans as a prudent investment avenue. It allows the policyholder to calibrate his/her investments for maximum appreciation, along with securing a life coverage.  Some of the top-rated ULIP funds, offer better-than-market returns, with the facility to choose plans according to your goals such as child education or retirement.

However, just like any other investment tool, we should be careful of the potential pitfalls and risks associated with unit linked insurance plans. Here is a list of six common mistakes you should avoid:

1. Investing only for the tax-benefits

ULIPs are eligible for tax benefit under section 80C of the Income-tax Act. It is considered as one of the investment products eligible for a tax deduction of up to Rs. 1.5 Lakh.  However, if you only want the tax-benefit then you should be aware that, you cannot withdraw the invested amount for a period of 5 years from a unit linked insurance plans. For withdrawing money before 5 years, you have to pay taxes on the money received. Therefore, you must invest in ULIPs only with a mid-to-long term perspective.

2. Buying insufficient cover

One of the purposes of a unit linked insurance plan is to provide coverage to the family in case something happens to the policyholder. If you choose a policy with a low sum assured because it helps you save on premiums, the funds may run dry very quickly. It is also advisable to take into account current expenses and inflation before determining the final sum.

3. Only investing for equity growth

ULIP gives you the option to select from a pool of investment products including debt and equity. The investment allocations must be based on your defined goals and never be random.  In case of a doubt, you can always pick some of the top performing ULIP plans at Finserv MARKETS like Bajaj Allianz Future Gain or Bajaj Allianz Goal Assure, which give up to 25% returns over a 5 year period.

4. Stopping premium payment

You should not stop paying the premium, either just after the first premium or anytime later. If the premium payments for your ULIPs are stopped, you may not be able to withdraw the amount until the lock-in period of 5 years. If you stop paying your premium after the first year and withdraw the amount after the lock-in period, you are penalized on the net asset value of your total investment for the five years.

Even the amount that you would receive after the completion of 5 years would be given after deducting various charges like fund management charge, annual charges, and surrender charges and the insurance cover would be stopped immediately.

5. Overlooking the charges

There are many charges in a ULIP like premium allocation charges, fund management charges, mortality charges etc. These can easily amount to 4%-5% of the premium amount invested. On buying a unit linked insurance plan from our platform, you get the benefit of “no allocation charges” as well as get a payback of the mortality charges.

6. Hiding Relevant Information

Keeping your medical history or any other important information a secret from the policy provider is a big no-no. The reason being, if the policyholder were to succumb to an unrevealed health condition, their claim would be rejected, and the plan will become void. Therefore, always be truthful while filling up the application form.

Multiple factors including the dos and don’ts must be taken into consideration while deciding on purchasing an investment product. Once you are mindful of these risks and are buying ULIPs only from reliable sources such as Finserv Market, you can easily fulfil your dreams without compromising on the financial stability of the family.

To know more on ULIP investments in depth, you can check out these blogs:

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522