In India, the penetration of life insurance products can be huge. According to a report, nearly 65% of Indians purchase life insurance. However, the growth of the insurance sector can give rise to various myths and notions about a product. One of the popular product, which has gained limelight due to the rising perceptions, is a Unit Linked Insurance Plan (ULIP). A ULIP plan is a dual-benefit product, which can combine the investment and insurance under a single integrated plan.
Since a ULIP plan has been a part of the market for a long time, there have been various notions, which might not let you make the most of the ULIP investment. Therefore, let’s first bust each myth about a ULIP plan to reap its benefits in the future:
- ULIPs can provide minimal sum assured value
Previously, a ULIP plan would provide a minimum coverage value that might depend on your annual premium amount. Today, many ULIP plans can provide a coverage amount, which is 40 times the annual premium. The coverage amount that can be provided under a ULIP plan might not be limited irrespective of the growth of funds and market volatility. Typically, you should select a coverage amount based on your investment goals and financial requirements of the family.
- ULIPs can allow you to pay the premium for a limited duration
Contrary to the perceptions, you can select a premium payment mode based on your convenience. When you buy a ULIP policy, you should pay the premiums regularly within the chosen premium payment mode. Typically, you can decide to pay your premiums quarterly, monthly, half-yearly, and annually based on your financial status. If you might be unable to pay the premium, your insurer might offer you with a grace of 30 days. Failure to pay the premium during the grace period might lead to the lapse of the ULIP policy.
- ULIPs are an expensive investment
Gone are the days when a ULIP investment was an expensive affair. After the Insurance Regulatory and Development Authority (IRDA) introduced new rules, a ULIP plan is known for its low-cost charge structure. Today, an investment might consist of the four most common ULIP charges as given below:
- Mortality charge
It is paid in return for the life coverage from your insurer.
- Fund management charge
It is paid for the management of your selected funds, which can be either equity fund or debt fund.
- Policy administration charge
It is deducted from the administrative expenses, which go towards the management of your selected ULIP policy.
- Premium allocation charge
It is deducted directly from the premium.
- ULIPs can offer low returns
After the introduction of the ULIP policy, it was severely criticized for the provision of low returns. Due to the low return, many of you might have chosen to stay away from a ULIP investment. However, this is not the case anymore since a ULIP policy can offer relatively high returns based on the performance of the market. The equity funds under a ULIP policy can allow you to generate substantial returns when the market is performing well. However, you should choose equity ULIP funds at a young age when you can bear the risks of the market.
- ULIPs can double your returns
There can be times when your agent can miss-sell you a ULIP product by luring you into believing that it can double your returns within a time frame of 3-5 years. However, a ULIP investment might fail to double your returns until and unless the market is in good condition. Under a ULIP policy, you might be unable to generate high returns in a short duration. If you want to receive high returns, you should choose an equity fund based on your risk appetite and stay invested until the completion of the lock-in period of five years.
To sum up, when it comes to investments, there can be different myths and perceptions about a financial product. Moreover, a ULIP investment had a bad reputation in the market previously, which can also be another cause for the rising myths around it. Today, a ULIP policy has re-emerged in the market with many benefits and new-age features to suit your financial needs. Therefore, compare different ULIP options in the market and choose the right one based on your risk appetite and investment goals.
