5 Myths about ULIPs Debunked
Investors looking to invest in secure financial instruments must consider buying ULIPs. These are unique products that offer the security of a life insurance product and a chance for the policyholder to earn returns based on fund performance. There are a variety of ULIP policies that one can choose from depending on their risk appetite. Despite these ULIP benefits, a few myths about ULIPs still make investors wary. These myths exist due to outdated perceptions of ULIPs and misinformation. This article aims to break down these myths and reduce the inaccuracies related to ULIPs.
1. ULIPs are not worth the high premiums
As compared to other life insurance policy types, ULIPs have higher premiums. Due to this fact, many people shy away from taking the first step. However, one must also look at the various benefits they get by paying slightly higher charges. They no longer have to deal with the hassle of managing two separate products for insurance and investment. Both aspects are being dealt with under one product itself. Plus, they are getting the benefit of choosing between equity funds and debt funds. And if they are not comfortable with their initial choice, they can always choose the fund-switching option.
2. Fund switching in ULIPs always incurs charges
Talking about fund switching, many people tend to think that they will have to pay higher charges if they want to switch funds. This also breeds the misconception that any potential benefits obtained by changing funds might be nullified due to the high costs one is paying. However, in today’s time, this is merely a myth and nothing else.
Today, you can switch your ULIP funds as often as you want in a year without incurring any charges. Whether you are transferring funds from equity to debt or vice versa, you do not have to pay any additional costs to do so. Leading insurers do offer such exciting ULIP benefits.
3. ULIPs are suitable only for experienced investors
Since ULIPs are considered a product under the life insurance category, there is a misconstrued belief that only those with families should invest in such a plan. However, as time and again analyses have shown, young, single individuals can benefit immensely from life insurance. When you buy a ULIP at a young age, when you may not have much experience with investment, the premiums are pretty low since young people are considered relatively healthy. This makes it easier for you to afford ULIPs. Furthermore, when you invest in the equity market via ULIPS, you do so via a reputed insurance company. Fund managers from the company would advise you and ensure you enjoy the maximum returns from your ULIP plans. As a beginner investor, this can be immensely beneficial, financially and educationally.
4. ULIPs are not suitable for insurance coverage
ULIPs are so widely associated with investment jargon that many people perceive that, as a life insurance product, they are not good. As a deep dive into any ULIP policy wording shows, this is not true. ULIPs offer as substantial life coverage as any other life policy. The addition of accumulated returns increases the chance of the beneficiaries receiving a higher sum assured amount.
A ULIP also offers the usual insurance riders, such as the critical illness rider and the waiver of premium rider, amongst others. These can increase your financial protection to a new level.
5. Market performance affects the life insurance cover
Another myth that plagues ULIPs seriously is when people assume that the life insurance cover gets affected by the market performance of the funds. This myth does not hold at all. How the funds perform does not have any effect whatsoever on the life insurance corpus. The insurance and investment portions are separate aspects of your policy, even if they come under the same contract.
In some policies, the beneficiaries may receive the sum assured amount or the fund value, whichever is higher, on the passing away of the policyholder. So, better returns from the ULIP plans might mean a higher sum assured amount. However, negative performance does not imply a reduction in the chosen sum assured amount.
These myths can hamper your chances of earning good returns and adding a valuable product to your financial portfolio. That is why it is better to be well-informed. We hope this article has helped you in the process. Do consult a financial strategist before going ahead with any decisions.