Top 5 Myths About ULIP Investment

After the reintroduction of LTCG (Long Term Capital Gains) taxes, ULIPs have become the most popular and sought after investment instrument for investors. Remember, ULIPs were among the most mis-sold insurance products when they were first launched. Quite naturally, a number of myths plague around ULIPs for a long time.

Due to all the confusion and myths around ULIP plans, many policyholders still refrain from investing in ULIP plans. And that’s why we have decided to pull the curtains and reveal some of the most popular myths that plague the world of ULIP investments.

So without further ado, let’s debunk the top 5 ULIP myths.

Myth 1: ULIP is a Bad Investment.

Fact: ULIP plans are life insurance products that offer the double benefit of life insurance cover and lucrative investment opportunity. In fact, ULIPs have become the best investment instrument after the reintroduction of LTCG taxes on equity mutual fund schemes. ULIPs allow investors to choose investment funds according to their budget and risk tolerance. In addition, investors also get to choose from large-cap funds, mid-cap funds or small-cap funds when making ULIP investments. In addition, ULIPs allow investors to invest in equity, debts, hybrid, bonds, or money market funds depending upon their risk appetite.

In addition, ULIP plans can be customized according to the budget, requirements and preferences of the investors. ULIP plans also offer rider option to ensure meeting the insurance and investment requirements of the investors. In addition, investors have the flexibility to opt for and change sum assured, premium payment frequency and premium payment amount. ULIPs are ideal investment instrument for investors looking to ensure higher returns with long-term investment horizon.

Myth 2: Lock-in Period of ULIPs is 3 years.

Fact: Before 2010, the lock-in period of ULIPs was 3 years. However, after IRDAI revised its regulations after 2010, the lock-in period was changed from 3 years to 5 years.

The change in the lock-in period is beneficial for investors who look for higher sum assured with lowest charges and wish to generate higher returns by investing in fund options of their choice.

Myth 3: ULIPs Entail Many Charges Reducing the Investment.

Fact: This is yet another myth that is akin to fact. As per the revised guidelines of IRDAI, the total fund management charges cannot exceed 1.35%, whereas in mutual fund schemes, fund management charges are as high as 2.5%. All other charges are uniformly divided over time frame of the lock-in period (5 years) to ensure that a large part of the insurance premium is allocated towards the investment.

In addition, IRDAI has stipulated rules on the maximum charges that ULIP providers can take from investors against their ULIP plans. Therefore, it makes sense to carefully compare the scale of charges and approximate returns using an online ULIP calculator to buy the best ULIP plan available in the market.

Myth 4: ULIP is not a Liquid Instrument.

Fact: The charges under ULIP are evenly divided over the lock-in period in order to make sure that the large part of the premium paid by the investors is used for investment. In addition, almost all new-age ULIP plans offer the options of partial withdrawals after the end of the lock-in period without any extra charges. Even after partial withdrawals, the units that are left continue to be in effect and investors can returns on them.

Myth 5: ULIPs have High Switching Charges.

Fact: This is perhaps one myth that crosses the mind of every investor. However, this is not true at all. Most ULIP plans offer as many as 12 complete or partial funds’ switching in a year. And when one exhausts these free fund switch option, they may choose to pay a nominal fee of 0.50%, subject to a maximum of Rs.550, to switch between investment funds.

Over to You!

Now that you know these 5 top myths about ULIP investments, it makes sense to carefully compare different ULIP plans on parameters such as the number of free fund switches, investment fund options, sum assured, etc. to find and buy the best ULIP plan. But remember, ULIPs are the best investment instruments for long-term investment. So if you wish to generate higher returns on your investment, stay invested in ULIPs for a long-term.