ULIP Myth Busters
Given the increasing uncertainties of life, the need for investments in financial tools for a
better tomorrow is growing significantly. Many investment options are available, each with its
own set of terms and conditions, prerequisites, and much more.
Unit Linked Insurance Plans, commonly called ULIP, are a type of life insurance plan commonly
offered by most insurers today. They are a category of financial tool that combines life cover
with investment prospects.
They categorise it as a dynamic financial product that provides individuals with both wealth
and growth opportunities to secure their future. You can easily compare different ULIP plans
using a ULIP calculator to know which fits your needs best.
In this blog, we will debunk the common myths around ULIP.
Myth 1: ULIPs are Very Costly
Many people believe that in comparison to ULIPS, many other investment tools are available
that are more affordable.
However, it is important to understand how ULIP works to know the cost. When an insurer
receives a premium payment, it is divided into investment funds and facility charges.
Under facility charges, fund management fees, life cover premiums, etc., are all included.
Therefore, the overall premium might be slightly higher, but the benefits are also higher.
Myth 2: They are Very Risky
Based on the nature of this financial product, people mistake it as a risky investment option.
In reality, however, the insured has a lot of flexibility in choosing what funds to invest in. The
life cover offered under ULIP remains constant, but you can choose between balanced, debts,
or equity funds based on your risk tolerance.
This allows you to be more involved in your investment decision and decide on risk capacity,
considering your risk appetite and future objectives.
Myth 3: No Tax Benefits for ULIPs
One of the most common misconceptions about ULIP is that it has no tax benefits for the
insured as opposed to other life insurance plans.
Similar to other insurance policies, even ULIPS offer tax exemptions and deductions under
Section 80C (Income Tax Act 1961). This allows policyholders to benefit from claim deductions
from the premium payouts.
Myth 4: Limited Liquidity
The main principle of ULIP is to divide your premium into life cover and market-linked returns.
So, people believe it has no or very limited liquidity, making it not so promising as an
investment option.
However, like any other insurance policy, ULIP has a lock-in period pre-decided by the
policyholder during purchase. Policyholders can go for partial withdrawal post the end of this
lock-in tenure. However, they can access a portion of the investment funds for liquidity.
Myth 5: ULIPs are Not Transparent
Due to the multiple fund options available with ULIP, people believe it lacks transparency,
making it difficult to trust this investment tool.
In reality, insurance providers who offer ULIPs have to strictly provide the insured with all the
information regarding the performance of the funds, all related charges, and the correct
allocation of funds. This is needed to keep them in the loop regarding the performance and
detailed workings of their investment in ULIP.
Conclusion
The investment market is growing rapidly, so debunking the common myths around any
financial tool is necessary to make the right decision. ULIPs are extremely dynamic with their
offering of cover and fund investment options. They can be customised easily based on your
short- or long-term goals.
Moreover, as an insured, you have complete flexibility to adjust your financial portfolio solely
based on market fluctuations or goal changes. Let go of these myths and read the terms and
conditions of any ULIP before purchase.
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