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ULIP Myths – Demystified

ULIP-India

There are always misconceptions and myths about investment tools in the market that discourage many individuals. Even if you haven’t gone out of your way to research the financial instrument, such beliefs tend to stay with you. Similar myths about Unit-Linked Insurance Plans have been making rounds amongst various investors. So, today let us take you through some common misconceptions regarding ULIP policies and bust some of those myths.

Myth 1: ULIP Insurance Is Very Risky

Though ULIP plans offer you the opportunity to invest in equity funds, you can surely opt for debt or balanced funds. Based on your risk appetite, you are allowed to choose your investment strategy. In case high-risk exposure due to market fluctuations isn’t suitable for you, there are other fund options available. Thus, the myth that ULIPs are a risky financial instrument doesn’t stand true as you get a choice while investing. Apart from this, you can also switch funds in the future in case you change your mind.

Myth 2: ULIPs Give Doubled Returns in Short Term

As such an insurance policy is a market-linked instrument, the returns are higher. But they do not get doubled in a short span of time. Your investment returns highly depend on the market performance and the type of funds you choose. Staying invested for the long term is another factor that can help increase the returns. However, your ULIP insurance policy doesn’t give doubled returns in a small amount of time.

Myth 3: You Cannot Discontinue ULIPs

Many policyholders believe that one cannot exit a ULIP policy in the event of an emergency due to the lock-in period. Though it is recommended to stay invested longer, you can surrender your policy in the first five years. The insurer shall pay the plan’s surrender value after deducting the applicable charges. You can still discontinue the policy on completion of the lock-in and get your returns.

Myth 4: ULIPs Have a Limited Premium Payment Term

As some types of ULIP policies have a short premium payment term, it doesn’t necessarily mean a lower premium amount. You have the option of choosing to pay for a limited term or for the entire tenure. So, depending on the features of your policy and the insurance provider, the conditions of the plan may vary. However, it is advised to make regular premium payments as per the mentioned tenure to avoid any issues.

Myth 5: ULIPs Offer Unsatisfactory Returns

As a policyholder, you can pick the fund type in your ULIP policy. Based on your life goals, risk appetite, financial situation, etc. your choice of an investment fund may vary. Hence, if you opt for debt funds, your returns shall be stable. While equity funds do offer increased returns, the risks involved are higher as well. Thus, your ULIP returns completely depend on your choice of fund and the market movements.

Myth 6: You Don’t Get Sufficient Life Cover

It is a popular belief that ULIP is an investment tool and thus, you must purchase a different policy to meet your insurance needs. But that isn’t the case! The life cover in ULIPs highly depends on your premium paid and the sum assured amount you are aiming for. So, if you give equal importance to both these features of the plan, you can get a sufficient amount of life cover.

Now that you know ULIP policy myths along with the facts checked, you can easily opt for such a policy. But, make sure to understand your insurance and investment requirements to help you get a suitable ULIP plan. Use an online ULIP plan calculator to know the premiums you need to pay to fulfil your life goals.