A Unit Linked Insurance Plan or more commonly known as ULIPs, offer you the benefit of both – an insurance as well as an investment, in one single product. They allow you take advantage of various market instruments like stocks, bonds and funds (equity, debt or a hybrid) while securing yourself with a life insurance cover.
Having said that, there are still quite a few myths surrounding this product and the benefits associated with it. Hence, in this article, we’ve addressed some of these myths which can help you make an informed decision when it comes to purchasing your insurance plans.
Myth 1 – ULIPs come with high costs
Well, first you need to understand the structure of a ULIP. Whenever you pay a premium towards a Unit Linked Insurance Plan, your provider will first deduct certain charges for the services rendered and then invest the remainder into various market instruments/funds. These charges span across fund management, insurance cover, etc. Along with the investment, you also get a life insurance risk cover on the paid-up premium.
Myth 2 – ULIPs are risky
A life insurance cover that you purchase remains fixed in a ULIP. ULIP plans offer you a variety of investment options. So, at the time of purchasing your policy, you can choose a fund to invest in. This would obviously depend on your risk appetite. You can choose either a full equity investment (high risk), or a full debt investment (low risk) or a hybrid investment with a healthy mix of equity and debt (moderate risk).
Myth 3 – ULIPs do not come with good returns
Returns on ULIPs are determined by the choice of fund. Your choice of funds and switching the same at the perfect time can get you great returns from the market. Also, ULIPs do not only give you the opportunity to build funds and invest, but also provide you insurance cover. If you take all this into consideration while looking at the overall benefits, you will understand that ULIPs offer you much more than what meets the eye. Moreover, investments made through ULIPs do not fall under the purview of LTCG or Long-Term Capital Gains tax.
Myth 4 – ULIP Plans have no liquidity
When you purchase a ULIP, always look at a long-term goal. To encourage customers to stay disciplined with their savings, ULIPs have a lock-in period of five years. You will be able to make partial / full withdrawals only after this lock-in period. If a full withdrawal is done before your policy matures, you will not have to pay any charges (from 5th policy year onwards), and rather you would be paid the fund value. However, it’s advisable not to surrender your policy midway unless you really do not have funds. For you to get maximum returns, you would need to continue the plan for a longer-term.
Myth 5 – ULIP life cover decreases with dip in Market
Though ULIPs are linked to the equity market, this does not mean that your life cover would decrease if the market dips. Market fluctuations do not affect your life insurance cover at all.
Myth 6 – ULIPs do not allow investment of surplus funds
This isn’t true at all. You have the option to top-up your ULIP policy using any surplus funds and get tax benefits too just like with your regular premiums. Besides, there are a number of ULIP plans online that you can apply for.
Now that all the myths regarding ULIPs have been busted, it is advisable that you buy yourself a ULIP plan if not already done. For more information regarding ULIPs read about a unit linked insurance plan example.
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