A Unit Linked Insurance Plan (ULIP) does not work the same way as a savings plan or a term plan. The investment or market component it has makes the plan a bit more complicated to figure out than other options. Perhaps, this is one of the reasons why so many misconceptions have surfaced about ULIPs. So, let’s bid goodbye to some of those misconceptions today to help you better understand ULIPs.
Myth 1: ULIPs are highly risk
Being market linked in nature, there is a risk component associated with ULIPs. However, you can always reduce that risk component as per your choice. Go for an aggressive fund if you are okay with the risk, but choose a conservative fund if you are trying to play safe. If you are not sure which way to go, then get a nice mix of both funds and keep it balanced.
Myth 2: ULIPs are an expensive choice
This was not a myth a couple of years ago when the minimum charges of ULIPs were six percent. However, the Insurance Regulatory and Development Authority has reduced the annual charges down to three percent for the initial ten years of holding. So, it is high time for people to stop believing in the myth that ULIPs are an expensive affair.
Myth 3: ULIPs cannot be discontinued
Simply because you have started investing in ULIPs does not mean that you are stuck in it for good. ULIPs have a five-year lock-in period, and you can discontinue the plan after that. In fact, in most cases, you will not even be charged any additional amount for deciding to discontinue the policy.
Myth 4: Life cover goes down as the market fluctuates
Since it is a market linked plan, people are under the impression that as the market goes down, the life cover reduces in tandem. However, the market fluctuations only impact the market component of the plan. It has nothing to do with the life cover that stays the same, regardless of the fund performance or the market movements.
Myth 5: Investing surplus funds in ULIPs isn’t smart
If you are dealing with a ULIP for the first time, then do not start investing surplus funds in it right away. Observe the fund performance for a while and try to understand the features of the policy. After that, you can choose to invest your surplus funds in the ULIPs. Of course, you can put that in your savings plan as well. But if the market is doing well, then you will earn more returns by investing the amount in ULIPs.
Myth 6: Riders are not available in ULIPs
Riders are not solely meant for term plans. ULIPs have the common riders available, too. For instance, if you want to buy HDFC ULIP Plan, then you can search for the right add-ons with the policy. So, whether it is accidental death benefits or waiver of premium benefits, you can add any rider to your ULIP fund.
If all the myths mentioned above have been preventing you from opting for a ULIP plan, then you will hopefully not let them stop you anymore. Talk to an insurer today and gain a better understanding of the risk component and the premiums.