Unit-Linked Insurance Plans (ULIPs) are designed to provide investors with both insurance cover and financial benefits. You also enjoy ULIP tax benefits, which is an added advantage. However, there are many myths about ULIPs that might discourage you from investing in them.
Explain below are four myths about ULIPs that you need to be aware of.
Before 2010, investing in a ULIP was costly because of the high Premium Allocation and the Fund Management Charges (FMC) associated with it. However, in 2010, the Insurance Regulatory and Development Authority of India (IRDAI) introduced regulatory changes that capped the cost. Now, the charge for any policy with a tenure up to ten years is 3% of the gross income. In case of policies that come with more than a tenure of ten years, the charge is 2.25% of the gross yield. If you want an even more affordable ULIP, consider buying it online, as the low acquisition and maintenance charges make it inexpensive.
One lie that you are constantly told about ULIPs is that they have low returns. To understand its benefits over traditional insurance policies, you need to first understand how a ULIP works. When you invest in the policy, a portion of your money is allocated to the insurance plan, and the balance is invested in different funds. It is important to invest in the right funds to maximize the returns. Moreover, the ULIP tax benefits help you save a significant amount of tax liability. Under Section 80C of the Income Tax Act, the premium paid towards the policy is tax-deductible up to INR 1.5 lakh. In addition, the maturity benefits are tax-exempt Under Section 10(10D).
There is a belief that ULIPs are risky. However, the truth is that a ULIP is essentially an insurance policy, which has a lower risk compared to most other investment options like mutual funds. Also, you have complete control over the funds where your money is invested. So, you can decide how much risk you want to assume by allocating your money into equity or debt funds. When the market is unstable, you can transfer your money between funds to make sure that you are invested only in well-performing funds. Transferring your money from an equity fund to a debt fund lowers the risk of losses in a volatile market.
This is false. ULIPs can be surrendered before the policy tenure ends. A ULIP comes with a lock-in period, after which you can surrender your policy and the profits accrued from the funds will be paid to you. Contrary to popular belief, you can surrender your policy before the term ends if you are facing a financial crunch. However, if you do not have any monetary emergency, it is advised that you wait until the policy has matured to enjoy ULIP tax benefits and earn high returns.
Do not believe in the myths and research thoroughly before buying a ULIP to enjoy all the benefits. If you wish to inculcate investment discipline over the long term and earn healthy returns on investment, contact us and invest in a ULIP. With such a plan, you can avail of life insurance cover, consistent returns on investment and ULIP tax benefits as per section 80C and 10(10D) of the Income Tax Act, 1961.
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