What Are Some Myths Associated With ULIPs?

The unique opportunity to combine insurance and investing benefits into one product is provided by unit-linked insurance plans (ULIPs). Due to a poor grasp of the meaning of ULIP, its characteristics and the benefits of the items, there are a number of misconceptions about them. Here, we’ve dispelled some widespread misconceptions about ULIPs. We hope that this will enable you to make wiser choices.

The ULIP return calculator is a simple and convenient tool that you can use to predict the return you might get at maturity by entering a few details.

Myth 1: ULIPs are expensive 

Do you really think ULIPs cost a lot of money? Let’s begin by comprehending a ULIP’s structure. After subtracting fees for services like life insurance coverage and fund management, among other things, the premium you pay to a life insurance company for a ULIP is invested in funds of your choosing. 

The Insurance Regulatory and Development Authority of India (IRDAI) capped fees (excluding expenses for life insurance coverage) on ULIPs at 2.25% as of September 1, 2010, if a customer retains the policy for more than 10 years.

Myth 2: Because ULIPs offer market-linked returns, they are dangerous investments.

Reality: In a ULIP, the life insurance coverage you purchase remains constant. A normal ULIP will give you a variety of fund choices. You have the option to select the fund you want to invest in when you buy the policy. You can choose between equity, debt, or a balanced fund that combines debt and equity, depending on the level of risk you’re ready to face. Also, you have the option to transfer your corpus between funds or to designate incoming premiums for new funds. All of this is feasible with just one ULIP; no further products are required. 

Myth 3: ULIPs don’t offer profitable returns.

Reality: In ULIPs, the type of movement of the underlying asset class—equity, debt, etc.—and the fund selection determine the return. You can obtain the best returns from the market with a wise fund selection and timed switching. Most crucially, ULIPs give you access to insurance coverage in addition to the chance to invest and accumulate funds. The returns that ULIPs offer are extremely competitive if you take this into account when considering the entire advantages. 

Myth 4: After purchasing a ULIP, it is difficult to get out of it.

Reality: You should only buy ULIPs for medium- to long-term aims. ULIPs feature a five-year lock-in term, after which you can choose to cancel your current policy in order to promote systematic savings for these objectives. You won’t pay any surrender or exit load fees if you fully withdraw before the insurance matures; instead, you’ll get reimbursed your fund value. Yet, unless you have no other means of funding, it is not a smart idea to cancel the policy in the middle of it. While investing in ULIPs, you must commit to a long-term investment plan if you want to maximise capital growth returns. In fact, the force of compounding won’t usually start working until you continue investing in a ULIP plan in accordance with the life goals you set when you bought the policy. 

Myth 5: If the market declines, ULIP life coverage will drop.

Reality: Just because ULIPs typically track the stock market doesn’t mean that the life insurance will drop off if the market falls. Life insurance is not at all impacted by changes in the market. If you pass away, your existing ULIP insurance will pay your beneficiaries the greater of the whole life cover or the fund value. 

Myth 6: ULIPs do not permit the investing of excess cash.

Reality: You can top off your existing ULIP plan coverage with any extra money you have on hand and still receive the same tax benefits as if you were paying regular premiums. For the life of the policy, you are free to make as many top-up premium payments as you like.

ULIPs or Unit Linked Insurance Plans are a popular investment option in India that offer both insurance coverage and investment opportunities. However, there are several myths associated with ULIPs that can mislead investors and prevent them from making informed decisions.

Additionally, ULIPs offer flexibility in terms of investment and withdrawal options, which can be customised to suit the investor’s needs. It helps to understand all aspects of the meaning of ULIP.

You can use a ULIP calculator to estimate future returns and the value of a ULIP investment.