Top 5 ULIP Myths You Must Know For Successful Investment in 2019 & Beyond

After the reintroduction of LTCG (Long-Term Capital Gains) tax on equity-oriented mutual fund schemes in the Union Budget 2018, ULIP plans have become immensely popular and sought after amongst investors. 

Unit Linked Insurance Plans (ULIPs) come packed with the triple benefit of rewarding investment, comprehensive life insurance and ultimate tax savings. But there are several misconceptions and myths that plague around ULIPs due to lack of awareness about different benefits and features of this investment cum insurance product.

In this post, we’ve addressed top 5 myths that associated with ULIPs in order to help investors make well-informed investment decisions.

Myth 1: ULIPs are Costly Investment Instrument.

Fact: A large number of people believe that ULIP investment is a costly proposition because of the wide range of costs associated with ULIP plans. In fact, the premium paid towards the ULIP plan invested in the investment funds after deduction of charges such as fund management charges, policy administration charges, etc.  

But you’ll be surprised to know that life insurance companies cannot charge more than 2.25% charges on ULIP plans for the policy term of 10 years. According to the rules made by Insurance Regulatory and Development Authority of India (IRDAI), effective 1^st of September, 2010, ULIP charges have been capped at 2.25%. In addition, the easy availability of these products online has made charges associated with ULIPs lower than ever before.

Myth 2: ULIP Investments are Risky.

Fact: This is yet another popular myth that surrounds ULIP investments. However, the truth is akin to this myth. Though ULIP investments are market-linked, the availability of multiple investment fund options to choose from makes it less risky than other investment instruments such mutual funds.

The multiple investment fund options available under ULIP plans make it easy for investors to pick the investment funds according to their risk tolerance and future investment goals. In addition, the free fund switching option makes it easy for investors to switch funds completely or partially depending upon their market performance of the funds. In addition, the live insurance component of the ULIP plan isn’t dependent on the market and remains same throughout the term of the plan.  

Myth 3: ULIP Investment Doesn’t Yield Great Returns.

Fact: In ULIP investment, the returns are driven by the nature of movement of asset class and the selected investment fund option. A careful selection of investment funds and smartly switching funds at the right time can help investors score attractive returns on their investment.

In addition to the choice of asset class and the investment fund option, ULIPs also offer attractive tax benefits that helps investors generate returns without having to worry about taxes. After taking all this into consideration, it wouldn’t be an exaggeration to say that ULIPs offer quite competitive returns on investment.

Myth 4: Investors Cannot Exit ULIPs.

•  In order to make the most of ULIP investments, investors must stay invested for a long term. However, investors may choose to exit ULIP investments whenever they wish to. ULIPs come with a lock-in period of 5 years. Upon the completion of the clock-in period, investors may choose to surrender their policy and receive their accumulated fund value.

In case an investor chooses to surrender the policy before the completion of 5 policy years, the life insurance cover terminates and the fund value minus the discontinuance charge is transferred to the Discontinued Policy Fund. The discontinued Policy Fund earns interest each year till the completion of 5 year. And upon the completion of 5 years, the fund value accrued in the Discontinued Policy Fund is paid to the investor. 

However, investment experts suggest to stay invested in ULIP plans for a long-term in order to reap maximum returns on the investment through capital appreciation. Long-term ULIP investment ensures higher returns due to rupee-cost averaging and the power of compounding.

Myth 5: Live Cover in ULIP Plans Decrease When the Market is Volatile.

Fact: This is yet another popular myth around ULIP investments. The live cover option under a ULIP plan doesn’t decrease during volatile market situations simply because the ULIP plan is linked to the market. In fact, the life insurance cover component of the ULIP policies doesn’t get affected by the market fluctuations. The life insurance cover of ULIP plans ensure that the nominee of the policy get the death benefit, which is usually higher of the total Sum Assured or the Fund Value, in the event of the death of the life insured.

Wrapping it Up!

So there you have it – top 5 ULIP myths that you must know for successful investment in 2019 and beyond. Remember, ULIP investment is perhaps the best option to realize long-term investment goals. ULIP plans help investors create wealth while enjoying comprehensive life cover and tax benefits over the long term. So get confused by one the many myths around ULIPs. Instead, start investing in ULIPs today to generate attractive returns on your investment.