Savings and insurance make critical aspects of a solid financial plan. A ULIP scheme is one such unique offering that includes these components. Short for Unit Linked Insurance Plan, a ULIP policy invests a part of your premium in life cover and the remaining in market-linked securities.
These ULIP investment plans come with varied fund and portfolio management options. One can easily pick from the several online ULIP plans in India. Despite its popularity, there are several misconceptions associated with ULIP returns, functioning, and more.
This article busts these myths so you can take advantage of this unique investment offering.
Top ULIP Myths and Associated Facts
Myth 1: A ULIP plan is expensive
A lot of people think of ULIPs as a costly investment due to their high premium allocation and charges for fund management services.
Fact: Yes, there was a time when ULIP providers charged as high as 10% for the services offered. But, that is not the case today. The Insurance Regulatory and Development Authority of India (IRDAI) capped these charges at 3% for the initial 10 years. If you hold it beyond that, the charges drop to 2.25%. In fact, you can find affordable online ULIP plans in India that come with lower charges to suit every budget.
Myth 2: ULIP investment is risky
Many believe that ULIPs are not a viable investment instrument because of the high risk involved in the equity markets.
Fact: While equity markets can fluctuate, ULIPs provide varied fund options, including equity, debt, and balanced funds. At the time of purchasing a ULIP policy, you can choose the fund option depending on your goals and risk appetite. You can invest in an aggressive equity fund if you are willing to take risks or settle for a debt fund if you want more security. You can also opt for a mix of equity and debt funds under a ULIP scheme.
Myth 3: ULIPs do not offer good returns
Fact: ULIP returns are determined by the choice of fund. As mentioned previously, these policies offer varied investment options depending on your needs and goals. Smart selection and switching between funds at the right time will fetch you optimal returns. A ULIP plan calculator can be helpful in this regard. Plus, you can opt for expert services to manage your wealth and ensure great returns under a ULIP plan.
Myth 4: Low coverage for life cover if the market falls
One of the most common misbeliefs regarding ULIP insurance is that the investment element will affect the life coverage.
Fact: Market volatility has nothing to do with the life insurance part of the product. Whether the market is on an all-time high or it plunges, your life cover remains unaffected. In fact, a ULIP policy pays your loved ones full life cover or fund value, whichever is higher, in case of the unfortunate event of your death. This makes it a smart investment choice.
Myth 5: Investing surplus funds is not an option in ULIPs
Fact: You can top-up your ULIP plan using an extra pool of reserves to maximize the value of your investment portfolio and increase savings. This top-up insurance premium carries the same tax benefits as your regular premium and can be paid any time during the tenure of your ULIP policy.
Myth 6: A ULIP policy cannot be discontinued
Fact: ULIPs usually carry a lock-in period of 5 years, during which you cannot exit the policy. The lock-in period enables you to maintain disciplined savings to accomplish your goals. For instance, continuous investment in your ULIP pension plan will help you reap great returns to secure you financially post retirement. However, you can exit the investment plan any time after the lock-in period without incurring any surrender charges.
ULIP investment or fixed deposit: Which is better?
Apart from the myths mentioned above, one of the usual questions that pop up while investing is whether or not ULIPs are better than fixed deposits.
Fixed deposits have remained a preferred choice of investment for years. But, ULIP investment is a wise choice for several reasons that include:
● Unlike fixed deposits, ULIP insurance also provides a death benefit along with savings.
● ULIPs allow you to switch between funds depending on your needs and the status of the market. FDs do not facilitate such flexibility. Online ULIP plans in India make it easier to manage investments.
● Fixed deposits give you a fixed payout, while ULIP returns vary as per market conditions. You always have a chance to earn higher returns with ULIPs.
ULIPs by Edelweiss Tokio Life
Edelweiss Tokio ULIPs allow you to leverage all the major benefits of Unit Linked Insurance Plans, such as:
1. Choice of varied funds for investment
2. Dual benefit of life cover and wealth building
3. Option to include spouse and child in the plans
4. Tax benefits as per prevailing norms
Many people have reaped great rewards with ULIP investment, which has been in the market for decades. If you have not included this investment instrument that carries double benefit, then it is time to do so now!
Aastha Mestry - Portfolio Manager
An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.