Why these myths about ULIPs are not true 1

Why these myths about ULIPs are not true

Every person handles their financial journey differently, choosing their insurance or investments. These days, countless types of investment options are available that cater to several people’s needs. However, it isn’t easy to choose with so many options available. An investment and life cover are essential in today’s world, and a Unit Linked Insurance Plan (ULIP) gives you both. It is a combination of two financial instruments: insurance and investment.

Understanding ULIP

ULIP is a type of life insurance that also has an investment component. It is a two-in-one financial instrument. The premiums of your ULIP are partly allocated towards providing life cover and partly towards investment. The life insurance part ensures that your nominees will receive the sum assured in case of your sudden demise during your policy. This ensures that the financial future of your loved ones is insured in your absence. While in the investment component, the returns of ULIP aid wealth generation. Based on your risk appetite and financial objectives, you can allocate your funds to a ULIP. You will receive the money invested and its return after your ULIP matures. Depending upon the policy you have bought, the lock-in period of a ULIP is anywhere from three to five years. You can also make partial withdrawals after the lock-in period in case of financial emergencies.

Debunking the myths associated with ULIPs

ULIPs help generate wealth while providing security to the policyholder. However, since insurance and investment have two components, some people find them difficult to understand and fear investing in them because of the associated myths.

Here are some common myths associated with ULIPs and the reality-

  • Myth 1- ULIPs are high-risk investments

    ULIP is a complex type of life insurance since it has an investment component. Most people fear their investment in ULIP is risky and opt out of investing in them. ULIPs allow you to choose the type of investment based on your risk appetite. If you take risks, you can allocate your funds to equity. If you do not want to risk your investment, there are low-stakes debt funds. Balance funds are also available, where part of the money is invested in debt and interest in equity funds, leading to moderate risks. Use a ULIP calculator to estimate the return on different funds of your ULIP. Also, it is one of the rare financial instruments that allows you to switch your allocation anytime you want from debt to equity and vice versa. This helps the buyers of ULIP to make the most of the market fluctuations.

  • Myth 2- Withdrawals in ULIPs are restricted.d

    Most financial instruments do not allow you to liquidate your funds during emergencies, especially life insurance products. When you buy a ULIP plan online after the lock-in period, you are eligible for partial withdrawals anytime you want. This feature of ULIP is quite helpful in times of uncertainties and emergencies.

  • Myth 3- ULIPs have high charges

    When ULIPs were launched years back, their charges seemed a bit much in the pocket of the consumers by many. However, this has changed with time. Now, ULIPs have been created with the affordability factor in mind. Today, when you buy a ULIP plan online, the charges are nominal and worth the returns a ULIP usually generates.

  • Myth 4 – Life coverage depends on the market

    There are two components to a ULIP: investment and insurance. While the investment component of a ULIP is directly subjected to market fluctuations, things remain unchanged in the insurance component. Your life cover will remain unaffected no matter how your investments are doing. In case of the sudden demise of the policyholder, the nominee will receive the sum assured or the fund value, whichever is higher. The nominee would not accept less than the sum assured in any scenario. In some ULIPs, the nominee gets the sum assured along with the fund value, depending upon the terms and conditions of the ULIP policy.

Ricardo L. Dominguez

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