Despite being a robust insurance cum investment plan, ULIPs are one of the most misunderstood insurance products in India. Various myths surround ULIPs, adding to the overall faulty image creation and rumours, due to which, people are sceptical about the usefulness of these plans. Subsequently, policyholders either end up buying an erroneous plan or surrender the policy before it could play out its full potential. Here are some reality checkpoints around the myths that have been surrounding ULIPs for a long time now.
Myth 1: ULIPs are not a bankable investment option
While Unit Linked Insurance Plans (ULIP) are primarily treated as a life insurance product, they also have a prominent investment aspect that allows policyholders to maximise their money through market-linked options. ULIPs offer you an opportunity to invest and build funds, as per your risk appetite.
Also, you can easily vary your invested amount between equities, debts, hybrid funds or bonds, as per market volatility trends so that your money remains protected at all times. There are multiple rider options too, which add to the flexibility of ULIP plans and help you customise the ULIP to suit your long-term goals.
Myth 2: You don’t need a ULIP plan since you have an employment pension to take care of your needs post-retirement
Nowadays, many employers offer a fixed sum as pension to their employees nearing retirement. However, the pension amount isn’t adequate to suit your lifestyle post-retirement, especially when you factor in inflation and subsequent devaluation of your corpus. Statistics show that individuals often tend to take up odd jobs to support themselves and their family financially after they have surpassed their retirement age and their employee pension proves inadequate.
Therefore, it is always a good idea to choose an appropriate ULIP plan that would help you create an additional source of income post-retirement to take care of your lifestyle expenses, thus curbing your need to work jobs after retirement.
Myth 3: ULIPs have a barrage of levied charges, while the total money invested in market-linked funds is far low
It is true that insurers levy some charges such as premium allocation charges, fund management charges, mortality charge and surrender/discontinuance charge up-front, during the 5-year lock-in period. However, recent directives issued by the IRDAI now ensure that these charges are uniformly divided over the entire lock-in period.
Once the initial 5-year period is exceeded, these charges are mostly reduced to zero. On the other hand, a significant portion of the premium paid is invested in multiple funds, right from the first year. Overall, ULIPs allow you to make prominent long-term investments and reap high returns on the investment, the longer you remain invested in the plan.
Myth 4: ULIP aren’t flexible enough to support you in case of an emergency
Some of the best ULIP plans from reputable insurers including Max Life Insurance are not only cost-effective but are also quite flexible. You must see them as a long-term investment opportunity that offers multiple options to invest in and reap benefits as and when required. As an investment cum insurance product, ULIPs give you complete transparency regarding managing your investment portfolio.
You can not only switch between funds to protect your returns from market volatility but can also make partial withdrawals within a year, without incurring any extra charges (though only after the lock-in period ends). That said, even when you make a partial withdrawal, the remaining NAV units continue to be invested in the fund of your choice.
Myth 5: Switching Charges in ULIP are quite high
No, switching funds are usually not chargeable. Many insurers allow you to make up to 12 or more free switches in a year (depending upon the plan you’ve purchased). You can always refer to the policy document to confirm the number of available free switches. This would not only help you make the comparison between different ULIP plans but will also help you refrain from making more switches than required.
Remember, ULIPs are most efficient when you remain invested in them for a significant period. This holds for most fund options available under the plan.
Don’t Believe Before Comparing
Contrary to popular opinion, ULIP plans not only offer a comprehensive life insurance cover but also allow you to maximise your savings through disciplined long-term investments. Regardless of the uncertainty that surrounds these plans, ULIPs are not only efficient but are also flexible and transparent, thus allowing investors to be in control of their investments at all times.
Therefore, it would be a good practice to perform due diligence and make a thorough comparison between plans to choose the best ulip plan according to your goals and needs, instead of deliberating over the exact ULIP policy meaning and the myths that surround these plans.