Busting Common Myths about ULIPs

A common belief among many Indians is that a Unit Linked Insurance Plan (ULIP) is a high-risk investment option. On the contrary, it is one of the more stable and successful types of investment. It offers dual benefits of insurance and investment. This means that part of your investment is put into stocks, bonds and debt instruments, while the rest is put towards providing you insurance cover. This dual character makes ULIP plans very reliable and rewarding, offering you a means to ensure financial security for your family while also building wealth.

However, before you go ahead and invest your hard earned money, learn more about what a ULIP plan is and the truth behind many of the myths surrounding this investment option.

Common Misconceptions about ULIPs

• Risky Investment: The main reason behind this belief emanates from the association with the equity markets, which are considered high risk. However, there are several types of ULIPs, and you have control over how much of your funds you wish to invest in each type of instrument. If you have a low risk appetite, choose a plan that invests a larger portion of the funds in bonds and debt. Also, we must not forget that the ULIP invests simultaneously in insurance funds, which provides you security.

• Too Expensive: Yes, there was a time in the recent past when these plans were more expensive than some of the other investment options. But that is not true anymore. Both the fund management charges and the premium charges have been decreased considerably, making it a much more affordable option. India’s insurance regulator, IRDAI, has capped the charges at 3% for 10 years and at 2.25% for more than ten years.

• Low Returns: It all depends on your investment timeframe and choice of investment instruments. To accrue greater returns, invest for a longer timeframe. There are a wide variety of plans, devoted to accomplishing different objectives. So, choose based on your financial goals.

• Cannot Surrender Before Maturity: There is a minimum lock-in period for these plans, usually 5 years. Once this period is over, you can liquidate your funds for any emergency cash needs.

• Insurance Amounts is at Risk: Since these plans invest in market-linked instruments, some people might believe that the insurance amount will also be affected in case the market falters. However, remember that the investment amount is totally separate from the insurance amount. So, the insurance amount is not exposed to market risks.

• Not Meant for Surplus Funds: If you are working on building your savings, ULIPs are a great option. Instead of leaving your surplus funds idle in a savings account, why not get the dual benefits offered by these plans? In fact, if you have any extra money, you can always revise your premium amount for higher insurance and returns.

Before you go ahead and invest in a plan, learn as much as possible about it. Don’t hesitate to ask any questions from the plan provider and only invest when you are confident of the plan.