Top ULIP Myths That You Must Stop Believing In
In India, many people prefer buying ULIP (Unit Linked Insurance Plan) over other life insurance products mainly because it offers the dual benefits of investment and insurance in a single product. It is a popular investment choice. However, despite its popularity, many people have misconceptions about ULIPs.
Since the financial awareness in India is low, it is not surprising to see people believing in such myths. So, to help you make the right purchase decision, we list down the most common ULIP insurance-related myths and the truth behind them.
Myth 1 – ULIPs are expensive
Until 2008, ULIPs were expensive as the premium allocation charges were high. However, the new age ULIPs are affordable as the Insurance Regulatory and Development Authority of India (IRDAI) has capped the charges to 1.35% of the fund value.
Additionally, as IRDAI govern the insurance companies, you can be assured that the insurance provider promptly informs you about the associated charges so that there is complete transparency.
Myth 2 – Investments in ULIPs are risky
One of the most significant features of ULIP insurance is its flexibility. It allows you to invest in different funds to suit your specific risk-taking capacity and financial goal. For example, if your goal is to build a large corpus over a period and do not mind taking a risk, you can invest in equity funds. In contrast, if you are looking for a low-risk investment option that offers you consistent returns, you can invest in debt funds or hybrid funds.
The popular notion that all ULIP investments are volatile is wrong as you can choose the fund you want to invest in. Of course, there is an element of risk as the returns depend on the fund’s performance. But, historically, ULIPs have offered valuable returns in the range of 10-12%.
Myth 3 – You cannot discontinue ULIPs
This is perhaps one of the most common ULIP-related myths that stop people from investing in it. However, the truth is you can easily discontinue or surrender the ULIP policy after the five-year lock-in period without incurring any surrender charges.
Myth 4 – The life cover in ULIP is very low
Contrary to popular belief, ULIPs provide decent coverage, and it largely depends on the premium amount you pay annually. Some new-age ULIPs offer coverage up to 40 times the annual premium. Additionally, irrespective of the funds’ performance and growth, the coverage amount you choose remains secured from the market volatility.
Myth 5 – You can get high returns within 3-5 years
It is wrong to assume that you can generate high returns from your investment in ULIP within 3-5 years. It is a long-term financial product, and the investments in equity funds deliver excellent returns in the long run.
Additionally, the returns you get depend on the market conditions. You can expect to gain valuable returns after you stay invested for 10-15 years.
Before purchasing ULIP, you must do your due diligence and equip yourself with facts. Always verify the information you may read on the internet before making the final purchase decision.