Published On : Mon, May 31st, 2021

7 Common Myths About ULIPs You Must Know

It is common for people to falsely believe a lot of things, until genuine information comes along. These false perceptions are known as myths. As is with everything else, the financial world is not immune from this misinformation that can have an adverse impact on your investments and finances in the long run. Even something as simple as an investment calculator can be marred by a lack of knowledge!

Life insurance, too, was often believed to be an unexciting financial product that lost its value and returns over time due to inflation. However, with the introduction of ULIPs, the investors were able to see the wealth creation opportunities along with the benefit of life insurance protection.
ULIP full form is Unit Linked Insurance Plan that is designed to provide profitable returns and encourage long-term investment. 

In this article, we will talk about the most common myths around ULIPs that will not only help you make informed financial decisions and use tools like investment calculator effectively. 

  • ULIPs Are Expensive

For the longest time, ULIPs were believed to be a costly investment which was even true up to a certain period. However, it is not the same anymore. Over the years, ULIP charges have been slashed, and some charges have been removed to make them more attractive and profitable. 

But first, you need to understand ULIPs are a complicated investment option. The fact that only some portion of the premium is invested in the unit made investors believe that it is an expensive product. However, if you calculate ULIP returns online, you will see that it offers not only higher returns but also life protection. The extra charges are only there to help you get the best return on your investment.

  • Insurance Cover Will Decrease If The Market Sinks

When you invest in an instrument like ULIP, your insurance company will invest a portion of your premium to provide life insurance cover, and the other portion is used for investment purposes. 

You can calculate ULIP returns online to decide how you want to divvy up the premium. However, as per IRDAI and contract guidelines, the insurance company is liable to pay you the sum assured or fund value, whichever is higher, in the event of the policy holder’s death. In most cases, the sum assured is at least ten times the annual premium. 

  • ULIPS Are A Risky Investment

ULIPs are as risky as you want them to be! That said, they are completely dependent on your risk appetite. Simply put, if you want to grow your wealth faster and earn higher returns in a short period of time, then you would have to take some additional risks and invest more of your premium to equity-linked plans. This is where an investment calculator comes into play. 

Use this tool to see how much premium you can afford and take help from a professional fund manager to see how to divide your premium as per your risk tolerance. If you are a risk-averse investor, consider investing in debt-funds that offer less returns but more security. Additionally, you can also switch your fund portfolio to help you leverage the prevailing market conditions. 

  • They Offer Low Returns On Investment

Due to lack of information, many investors falsely believe that ULIPs are the same endowment plans offering low returns. However, in reality, ULIPs yield consistent returns for their investors. Be sure to use the investment calculator to choose the right premium that you can affordably pay for the tenure of your investment and reap the benefits of wealth creation in the future. 

  • You Cannot Discontinue ULIPs

Another common myth about ULIPs is that they cannot be discontinued. That is the reason many people refrain from adding them to their investment portfolio. However, that is not true. It is possible to discontinue your ULIP plan once you have successfully invested in it for a lock-in period of five years. You will not be liable to pay any surrender charges after that period. 

  • ULIP Life Cover Is Subject To Market Volatility 

Not many people know this, but the life cover element of ULIP remains unchanged even in the face of market fluctuations. Since ULIPs are linked to the market equity, investors worry that their sum assured will tank if the market falls. This is one of the most widespread misconception surrounding ULIPs. 

Even if the market is bearish, your life cover will remain unaffected. At the same time, if the policyholder dies during the policy period, the insurance provider will pay the life cover or the fund value, whichever is higher. Don’t forget to use the investment calculator to assess the right premium amount. 

  • ULIPs Do Not Provide Health And Accident Insurance

This is not true! Just like any other life insurance product, ULIPs too come with the option of supplementing your life insurance with riders. Supplementing your life cover with add-ons will provide you with an extra layer of protection against unforeseeable circumstances. 

If you are a potential investor, you need to look at ULIP objectively and study its various benefits before making an investment decision. If done the right way, you can not only benefit from its comprehensive life cover but also expand your wealth over a period of time. If you are looking to invest in ULIPs, you can check out websites of reliable insurance providers like Max Life Insurance. You can use the tools like an investment calculator to help you make a sound investment decision.