With the number of investors having increased in recent years, people are always on the lookout for safer investment options. While market investments have always been the preferred choice, investors also want more apart from the investment. One financial instrument provides you the benefits of investment and insurance in the same policy: a ULIP insurance (unit linked insurance plan).
ULIPs have been around for a while now. However, there are still people who stay away from them due to many myths related to them. What are these myths related to ULIPs? How many of them are true? Read more to find out.
A unit linked insurance plan is a type of life insurance policy. You can enjoy the dual benefits of investment and insurance in the same policy. The premiums paid are used for both the purposes. When it comes to investment, you have the option of selecting between equity and debt funds. Or you can choose to invest in both based on your risk appetite and life goals. Life insurance cover is provided to the loved ones of the policyholder. They get death benefit in the event of the policyholder’s sudden demise. The nominee is also entitled to get the maturity benefits from the plan.
What are the myths related to ULIPs?
There are many myths related to ULIPs that have deterred investors from choosing this product. However, all those myths have been debunked. Listed below are few such myths about ULIP insurance:
- ULIPs are expensive
It is natural for many to assume that a financial instrument that offers both investment and insurance to be costly in nature. That is not the case in terms of ULIPs, however. In the earlier times, ULIPs used to be slightly steeply priced. This was mainly due to the charges that used to be levied on them. These charges include administration fees, switching charge, fund management charge, etc. As these charges are deducted either from the fund value or the premiums, the cost used to increase a bit. However, mandates from IRDAI had a significant impact in reducing the cost of these charges. These charges are as low as 1.35% now, indicating how cheap ULIPs have become for everyone.
- Investments are volatile
In ULIPs, you have the option of investing in equity and debt funds. While equity funds carry a high-risk factor, they also provide higher returns. On the other hand, debt funds carry a low-to-medium risk factor and they provide medium returns. Based on what your risk appetite is and what your goals are, you can choose to invest in either fund. Many people assume that since there are equity funds, the investment could get impacted due to market volatility.
However, the investment is not done entirely in equity funds. You can invest in both the funds at the same time to maintain a low-risk factor and get continuous returns as well. Similarly, you have the option of switching your investment from one fund to another at any given time. This makes investing in ULIPs less volatile.
- ULIPs are hard to surrender
Investors in ULIPs are always advised to opt for a long-term plan in order to enjoy great benefits. However, there are many who decide to opt out before the end of the term. If you invest in a ULIP and want to surrender it after 7 years, you can do so easily. ULIPs come with a lock-in period of 5 years. If you were to surrender your plan during this period, you will not be able to access your funds until the end of the lock-in period. Once the lock-in period is over, your insurer will give you your money after deducting the necessary charges. So, no matter when you decide to surrender your plan, you will get your investment back.
These are some of the ULIP myths debunked. If you are planning on investing in ULIPs and want to know more about such myths and other details such as charges and returns, you can get in touch with your life insurance advisor.