There are many insurance and investment products available for our perusal to secure our financial future. Term insurance is one such product whereas mutual funds is another. Term insurance helps us to secure our family’s future, and mutual fund investment helps us to create wealth over a long term. ULIP or a unit linked insurance plan is a unique product that combines the benefits of both these financial instruments. It allows us to take care of our insurance as well as investment needs with a single premium.
Despite the uniqueness and usefulness of ULIP plans, there are many myths associated with them that make investors hesitant to buy ULIP plans. Let us discuss the myths associated with ULIPs and bust them one by one.
Myth 1: ULIP charges are too high
This is one of the most common myths that people harbour with respect to ULIPs. But the reason is understandable, because previously ULIPs were a bit of a costly investment. The premium allocation and fund management charges were as high as 6% to 10%. But that has become a thing of the past. The IRDAI has brought down these charges to a mere 3% for the first 10 years and 2.25% after that, making ULIPs quite an affordable investment option.
Myth 2: ULIPs are risky investments
Many people assume that ULIPs are only linked with equity funds and hence they’re a risky investment. But that is a complete myth. ULIPs can be invested in equity funds, debt funds as well as balanced funds. As an investor, you can make the choice of fund for your ULIP plan. You can also switch your funds midway if you feel the fund is underperforming. IF you’re risk averse you can always go for debt-oriented funds.
Myth 3: ULIPs cannot be stopped
Yet another myth about ULIPs is that they cannot be discontinued. ULIPs do have a lock-in period of 5 years, and if one wishes to surrender the policy, they can do so but the fund value can only be withdrawn after 5 years. After 5 years. However, you can stop the ULIP plan without any additional charges.
Myth 4: ULIP Life cover decreases due to market volatility
As with any life or term insurance, the life cover with ULIPs too is totally fixed. The misconception arises from the fact that ULIPs are linked to equities and hence market fluctuations can lead to decrease in value. ULIPs offer a fixed assured sum or the fund value, whichever is higher if the policy holder passes away during the policy term.
Myth 5: ULIPs do not offer health cover or accidental death cover
A plain ULIP plan offers only the life cover along with the investment aspect. However, that does not mean one cannot avail additional riders. Just like your usual insurance policies, riders like Accidental Death Benefit rider and Premium Waiver Rider can be purchased over and on top of the ULIP to get maximum benefits.
The above myths make many investors wary of purchasing a ULIP plan. As is now evident, all these are simply misconceptions and if used right, ULIPs can be a great tool to accumulate wealth and insure your life at the same time.