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Insurers have been introducing different fund options to help benefit the investors in Unit Linked Insurance Plan. However, the policyholders are sometimes sceptical about investing in the ULIP plan due to security and flexibility reasons. And therefore, people lose out on the benefit of receiving a life cover and the secured market-linked returns. Here is a detail to help you clear the 5 Myths about the ULIP plan you should know.
Top 5 Myths about ULIPs
Here are the top 5 Myths about ULIP Plan you should know
- Investing in ULIP is risky – Many of you might feel investing in ULIP is risky. Well, it is certainly a myth. Investing for market-linked returns has its inherent risk factors. However, in a ULIP investment policy, you can decide on the fund option to invest based on your risk profile.
For example, if you are a conservative investor, you can choose the debt funds. And on the other hand, if you are an aggressive investor, you can choose the equity fund. There is also the option to invest in balanced funds if you can afford a moderate risk. Also, based on the market conditions, you can switch between the fund options to secure your investments anytime.
- ULIP Plans Are Costly – ULIP investments were slightly costlier until 2008. However, IRDAI has capped the fund management charges to a minimal percentage of the fund value since then. As a result, the ULIP policy has become a cost-effective option considerably.
Other ULIP charges pertain to managing the fund and taking timely decisions to safeguard the fund value. However, it is worth the investment as it is a secure way to grow wealth while ascertaining a life cover.
- ULIP Plans do not provide good returns – It is one of the common myths attached with ULIP. ULIP policies provide a combination of two benefits, life cover and market-linked returns. So, you cannot compare it to other financial instruments that provide exclusive market-linked returns.
Also, it is best to stay invested in the policy for a longer-term, such as 10-15 years, to derive maximum ULIP returns. And, during the policy duration, you can switch between options based on the required returns. Insurers offer a range of fund options. For instance, the Tata AIA ULIP plan offers 11 different fund options.
- Fund Switching Is Expensive – One of the most important benefits of a ULIP plan is the fund switching option. You can switch between the funds provided by your insurer to safeguard your financial position. Unfortunately, many of you believe that fund switching is expensive.
However, insurers offer a few to all fund switches completely free of cost. If limited, it varies between 5 and 10 switches based on the insurer and the ULIP plan. And after the expiration of free switches, you can still switch between the funds at an extremely lower cost ranging from ₹50 to ₹500.
- Life Cover Depends On The Market Conditions – It is a predominant myth about ULIPs. The premium amount you pay for the ULIP plan is divided into two components. One portion goes for the life cover, and the other is for investing in the securities for market-linked returns.
Unfortunately, the market-linked returns keep varying. However, the life cover does not change and provides the expected benefits to your family in your unexpected demise. Also, if you have opted for additional rider options, you can still benefit from the same without being influenced by the market conditions.
Conclusion
ULIP plan is a comprehensive life insurance plan that offers a life cover and market-linked returns. It is a cost-effective option to derive dual benefits. However, many people feel it is not a worthy option considering certain myths. It is important to disbelieve these myths, understand their benefits, and invest long-term to maximise the benefits.
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