5 Myths About ULIP You Must Stop Believing.

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Introduction

Insecurities in life can give you fear of losing in life. Happiness and enjoyment are desirable pleasures that every individual dreams for. But is everyone capable of creating these? They say money brings the biggest sense of joy and satisfaction. People believe they can manage unexpected as well as desirable expenditures if they have money. Well the most appropriate way of building wealth for future goals is by savings.Though keeping aside money can be a great idea but it may not be the best plan when you are looking for money growth. No matter how much you save, the factor of inflation will reduce the worth of money you own. For example the gold price for 10 gms is Rs.48,000/- in 2021. After 10 years the price may double. It implies that you will have to spend more for the same quantity of gold. Not just gold, inflation and changing trends might leave you with less spending power.

Then what?

This will leave you in thoughts now! But that should not bother you. Rather, finding options to invest your money should be the next thing to do. There are different ways in which you can plan to invest and save. But one of the trending and the common financial instruments that individuals prefer include life insurance products and ULIP.

Life insurance policies are the traditional way of building funds for the future. Let us explore ULIPs and the common myths you must not believe.

Table of Contents 

What is ULIP?

5 Myths and corresponding facts about ULIP

Conclusion

What is ULIP?

ULIP is a Unit-Linked Insurance Plan that is also known as a double benefit insurance cover. The insurance product provides opportunities for investment and insurance. 

ULIP was introduced in the market in the year 1971 by Unit Trust of India (UTI). But gradually, like a common thing in the market gains mis-conceptions, ULIP also faced the brunt of mindsets and opinions. Over the years, ULIP became one of the most abused financial products. 

Apart from the myths that gained popularity, ULIP is known to provide the tax benefit under Section 80C of Income Tax Act, 1961. In one year, the maximum tax deduction that you can apply for is of Rs.1.5 lakhs.

ULIPs do attach with them the risk of returns but the benefits are wider making it an attractive product for investment. Knowing how much wealth you need to create, you can know how much investment you have to make. It also informs you of the amount of money you will need in future to manage the financial liabilities and burdens. To calculate the amount of wealth you would need, calculate here.

Read: Wealth, life coverage, and tax benefits-the many benefits of ULIPs.

In the next section, let us decode the myths that were aired by thousands in the market.

5 Myths and Corresponding Facts about ULIP

Are you gullible who falls prey to all the true or fake stories told to you? If yes, then to have a life larger than anything it is relevant that you bust the myths and evaluate the facts to have an individual opinion.

For now, let us explore the 5 myths that were common about ULIPs.

Myth 1: ULIPs are high priced financial products.

Corresponding Fact: IRDA has capped the fund management charges. They put an eye and inform the investor if any change is made.

Initially, ever since the ULIPs were introduced in the market, the premium allocation in funds and management charges for the product was high. Considering the scenario, IRDA has put a cap on the total fund management charges. It is now applied as 1.35% of the fund value which then made ULIP a preferred and cost-effective choice for the investors.

The insurance companies cannot change the game because they are under the lens of IRDA, the insurance regulator. 

Myth 2: Insurance cover is reduced if the market dips.

Corresponding Fact: The insurance companies pays the sum assured or the fund value in case of the death of the insured or on maturity of the policy.

ULIP are linked to market instruments that drive the returns. But if the life insured passes away the sum assured under the policy will be paid. Under ULIP, the premium you pay is further subdivided into two sections. One goes for the life cover and the other for the investment. In case of death of the insured, the insurance company is liable to pay the sum assured or the fund value, whichever is higher. The sum assured under the ULIP is 10 times the annual premium.

Myth 3: ULIPs are volatile.

Corresponding Fact: ULIPs allow the investors to choose from different funds.

One of the popular aspects of a ULIP is that they allow the investors to choose from different funds. The choice of funds will depend on the risk appetite of the investor. Individuals who expect high returns can invest in equities that are believed to be the riskier funds. On the other hand, those who are risk averse can put their money in debt funds. While those who want to take advantage of both can invest in balanced funds.

Myth 4: ULIP yields higher returns in the next 3-5 years.

Corresponding Fact: ULIP yields high returns when you remain invested in 10-15 years.

ULIPs are market-linked investment products that generate returns over a long period of time. You must not invest in ULIP if you have short term investments in your mind. The equity funds in the ULIP can deliver high returns but they also engage with themselves a high level of risk. Going slow and steady with ULIP can assure you of high returns that are worth making the investment.

Myth 5: Fund switching is expensive.

Corresponding Fact: Switching between funds in ULIP is allowed for free up to a certain number of switches.

ULIP allows for free switching of funds from the equity to the debt funds. It is a myth that there are hidden charges associated with it. The fact is switching between the funds is either free or is available for cost not more than Rs.50/- to Rs.500/-. Some of the insurance companies provide 5-10 free switching without any charges.

Conclusion:

ULIP is a financial tool that makes it possible for the investors to get an insurance cover as well as opportunity of investment. Though there are other tools that can provide investments but they do not come with life protection cover like ULIPs. The dual combination of insurance and investment makes ULIP a favorable choice for the individual who looks for returns and security both. The long-term objective of savings gives high returns that are variable and fluctuate with market conditions. But the tool can prepare you financially for your retirement or for your child’s education. For more information on ULIPs, you can read here.