Are ULIPs bad for investing? Find out!
New Delhi : Savings and insurance are essential components of a sound financial strategy. A ULIP plan is an example of a one-of-a-kind service that contains these components. A ULIP plan, which stands for Unit Linked Insurance Plan, invests a portion of your premium in life insurance and the remainder in market-linked assets.
These ULIP plans provide a variety of fund and portfolio management choices. In India, one may simply choose from various online ULIP plans. Despite its popularity, there are multiple misunderstandings about ULIP returns, functioning, and other aspects.
This post debunks these fallacies so that you may take advantage of this one-of-a-kind investing opportunity.
1. ULIPs Are Costly
One of the most popular benefits of ULIP is that it is no longer unreasonably pricey in reality! ULIP plans have fallen significantly, with some even being phased out.
ULIPs are sophisticated investment products with hefty ownership costs. People believe ULIPs are expensive since the whole premium is not invested in the unit. However, various mechanisms are at work in a ULIP to produce more profits while simultaneously providing life insurance, and these extra costs just help consumers get greater returns on their investment.
Furthermore, ULIP expenses are significantly decreased in modern plans, and some online ULIP plan providers do not impose premium allocation or policy maintenance fees. The IRDAI has also established a maximum fund administration fee cap of 1.35 per cent of the fund value, drastically lowering the cost of investing in ULIPs.
2. Insurance Coverage Will Be Reduced If The Stock Market Crashes
According to the IRDAI, insurance firms must pay the amount guaranteed or fund value in the event of death or maturity. In the event of the policyholder's death, contract principles and IRDAI legislation compel the insurance firm to pay the amount promised or the fund value, whichever is larger. Typically, the sum guaranteed is 10 times the yearly premium.
3. The Risks Of ULIPs
Moving to the other benefits of ULIP, it is entirely up to you to determine how much risk you are ready to accept. To get to your destination, you may drive swiftly, slowly, or regularly. Driving faster will bring you to your goal quicker, but it can also put you in danger. That's not to say that driving a vehicle isn't dangerous. Similarly, if you want to develop your money quicker and get larger returns, you must be willing to accept certain risks and invest in equity-linked ULIP plans. If you are risk-averse, you may want to be a cautious investor and invest in debt funds, which may bring lower returns but more stability.
4. ULIPs Have A Low Return On Investment
One of the most useful benefits of ULIP is that it has provided up to 67 per cent absolute returns over a five-year period. Many investors mistake ULIPs with endowment plans and assume they give poor returns due to a lack of information. ULIP plans, on the other hand, have regularly given investors excellent returns.
5. The Abolition Of ULIPs Is Not A Possibility
Yes, it's doable! Another myth that prevents consumers from investing in ULIPs and reaping the benefits of ULIP, wealth development, and tax savings is that they are too costly. If you discontinue a ULIP plan after the five-year lock-in period has expired, there are no surrender or discontinuance costs.
Before purchasing a ULIP, make sure you understand all of the charges, the investment horizon, the amount insured, and your investment objectives. If you are clear about your objectives, you will adhere to your strategy for a longer period of time and accumulate a greater corpus for yourself and your loved ones.
6. ULIPs Are Not A Viable Investment Option
ULIPs are a sort of life insurance that enables you to invest and increase your money. Indeed, ULIPs provide a wide range of investment alternatives. ULIP plans may be purchased depending on your risk tolerance. One may invest in large-cap funds, mid-cap funds, small-cap funds, or a combination using the investing funds accessible. You may put your money into equities, loans, hybrids, bonds, or the market. ULIP is very adaptive and versatile.
It enables you to change the premium payment conditions, the amount insured, and the frequency of premium payments. You may also customise with the assistance of ULIP riders. However, if you want to attain long-term goals, you must intervene. ULIP plans are not intended for short-term investment. ULIPs are designed for consumers looking for a long-term financial investment with substantial returns, often lasting 10 years or more.
7. Too Pricey To Use In An Emergency And Isn't A Liquid Instrument
The costs are now equally distributed across the 5-year lock-in term, enabling policyholders to leverage their investment. ULIPs should no longer be considered an expensive product; instead, they should be regarded as a long-term investment with several options to pick from based on one's risk tolerance. A ULIP plan is also a product that lets you view your investment in complete transparency. If you feel your money will get trapped, don't worry.
Since ULIP provides for some switching flexibility over time, you may switch if your funds are not underperforming. And invest your money in areas where you hope to generate more significant money. You may always withdraw a part of your money if you run out of cash in an emergency. After the lock-in period ends, the ULIP plan allows for free partial withdrawal. Even if you remove a portion of your investment, the remaining units stay in your account, and you remain invested.
8. ULIP Switching Prices Are Excessive
There are no costs involved with transferring money. Many insurance companies provide up to 24 free switchovers each year. When evaluating ULIPs from different insurers, consider the number of free changes offered. We hope that we have dispelled the most common misconceptions about ULIPs so that you may better understand how they work and receive a good deal. So put your money in the bank and get the rewards!
You may always withdraw a part of your money if you run out of cash in an emergency. After the lock-in period ends, the ULIP allows for free partial withdrawal. Even if you remove a portion of your investment, the remaining units stay in your account, and you remain invested.
Wrapping It Up
You have access to the best of both worlds when it comes to money, and ULIP plans meet these requirements. Today, ULIPs provide an excellent opportunity for capital development. They combine the advantages of insurance with tax savings in this manner. Furthermore, when you purchase ULIP plans online, you save money, which means you have more money to invest!