It is important to clarify all your doubts and demystify all the myths about investing in ULIP. Read this article and get rid of all the popular myths you've ever known about investing in ULIP.
ULIP being one of the most mis-sold products has led to too many myths around such a robust insurance cum investment plan.
Due to all the faulty image creation and rumours,it has been hard for ULIP to gain acceptance even after the revised product scheme. Many policyholders either have ended up buying a wrong plan, or have been quick in surrendering the plan causing loss of money. Consequentially, making ULIP a bad product.
However, today’s post is going to help in revealing some reality check points around the myths that have been circling around ULIP for long now.
In this article, we’ve debunked 5 popular ULIP myths:
Myth 1: ULIP is not a good option for investment.
Unit Linked Insurance Plans (ULIP), is a life insurance product that provides life insurance cover and an opportunity to invest and build funds. In fact, ULIP offers an ample of opportunity to invest. ULIP gives you the power to invest depending on your risk appetite. One can invest in large-cap funds, mid-cap funds, small-cap funds or a combination of any such investment opportunities through the investment funds offered. Be it equity, debts, hybrid, bonds, or market, you can invest as per your preferred choice. Moreover, ULIP is customizable and flexible. It offers flexibility to change the premium payment terms, the sum assured, choice of premium payment frequency. And you also have the option to customize with the help of riders to the ULIP. However, you must step-in only if you are looking for long-term goals. ULIPs are not structured for short-term investment opportunity. ULIPs are for someone who are looking 10 years or more financial investment with great returns.
Myth 2: ULIP has a lock-in period of 3 years.
Post 2010, as per the revised regulation by IRDA, the lock-in period has changed from 3 years to 5 years. According to the new regulation, it favours people looking for a high sum assured, and low initial charges, promising higher returns due to investment in funds.
Myth 3: There are many charges and the total money invested in funds is far low.
Yes, there were many charges. The charges were loaded up-front with higher percentage bar. These loopholes in the earlier products limited the policyholder’s returns as it hindered the benefit of investment. However, the revised products as per the IRDA guidelines helps policyholders to reap the benefit of investment. In the earlier scheme, almost 60-75% of the first-year premiums were allocated to charges in most of the cases. The recent changes ensure that these charges are uniformly divided over a period of five years (lock-in period). Consequentially, a good portion of the premium is invested right from the first year. Moreover, these fees or charges set by the IRDA are the maximum that the insurance company can charge, so you must compare before buying ULIP to strike a cheaper and better deal.
Myth 4: ULIP is expensive and not a liquid instrument in case of an emergency.
Hold on. As said, the charges have now been evenly distributed over the lock-in period of 5 years, the policyholder can now have an opportunity to leverage the investment. ULIP should no more be considered as an expensive product, in fact, one must see it as a long-term investment that offers multiple options to invest in as per one’s risk appetite. Moreover, ULIP is a product that gives you a complete transparency of your investment. If you think your money will get stuck, don’t worry. Because ULIP does offer switching flexibility over a period of time. If your funds are not underperforming, you can switch. And invest where you expect to get higher returns. About having no liquidity in case of an emergency, you always have an option of partial withdrawal. ULIP offers partial withdrawal after lock-in period ends that too at no cost. Even after a partial withdrawal, the remaining units continue and you stay invested.
Myth 5: Switching charges in ULIP are high.
No, switching funds is not chargeable. Many insurance companies do offer good number of 24 free switches in a year. Always check the number of available free switches when comparing ULIPS among the insurers. Hope, we have busted the most common myths that will help you in understanding the working of a ULIP which will help you to strike a good deal. So, stay invested and gain great returns!
Recommended Read:Learn about the switch fund option in ULIP