A wise investment requires you to understand the intricacies of various financial instruments, and unit-linked insurance plans (ULIPs) are no exception. ULIPs are a popular investment option in India that combines market-linked returns with insurance coverage. However, misconceptions about ULIPs often cloud investors’ judgments, preventing them from utilizing this versatile investment effectively. Let’s debunk some of the most common myths about unit-linked insurance plans and explore the facts of investing in them.
Myth 1: ULIPs are expensive.
Fact: While it’s true in the past, unit-linked insurance plans did attract high premium allocation and fund management charges, recent regulatory changes have significantly reduced these costs. The Insurance Regulatory and Development Authority of India (IRDAI) has capped annual charges, making ULIPs much more affordable. With charges now as low as 3% for the first ten years and 2.25% after that, low-cost ULIPs are accessible to all.
Myth 2: ULIPs are risky financial instruments.
Fact: The investment component of unit-linked insurance plans is linked to the market, which carries risk. However, ULIPs offer you the flexibility to choose your risk profile. You can invest in conservative debt-oriented funds for lower risk or aggressive equity funds for higher potential returns. Balanced funds offer a mix of equity and debt, providing a middle ground. Additionally, you can switch between funds to adapt to changing market conditions and personal risk appetites.
Myth 3: ULIPs are not for surplus funds.
Fact: ULIPs allow you to top-up your investment with surplus funds anytime during the policy tenure. These top-up premiums enjoy the same tax benefits as regular premiums, making unit-linked insurance plans a good option for long-term wealth creation with the flexibility to invest when funds become available.
Myth 4: You cannot discontinue unit-linked insurance plans.
Fact: After the initial lock-in period of 2-5 years, you can discontinue your unit-linked insurance plan investment without any surrender charges. This flexibility ensures you can adapt your financial strategies according to changing circumstances.
Myth 5: Life cover reduces with market volatility.
Fact: Contrary to popular belief, market fluctuations do not affect the life cover ULIPs offer. In the unfortunate event of the policyholder’s death, the nominee receives the sum assured (death benefit) or the fund value, whichever is higher. This feature ensures your loved ones are financially protected regardless of market conditions.
Myth 6: ULIPs do not offer health and accident cover.
Fact: ULIPs offer comprehensive insurance coverage, including options for health and accident riders. These riders provide additional financial protection in the face of unforeseen circumstances, such as accidents or illnesses. Moreover, ULIPs allow partial withdrawals, enabling investors to address immediate cash needs during emergencies.
Take Away
Unit-linked insurance plans are a versatile investment option combining insurance coverage with wealth creation opportunities. By dispelling common myths and understanding the facts of ULIPs, you can make informed decisions to achieve your financial goals effectively.
Remember, unit-linked insurance plans offer a unique combination of investment and insurance, making them a well-rounded financial tool. So, you must consider your financial goals, risk tolerance, and investment ability before making investment decisions.
