Unit Linked Insurance Plan (ULIP) is a kind of insurance where the returns do not lose their real worth due to inflationary trends. It makes for an ideal answer to wealth creation needs, along with providing insurance protection. Unit Linked Insurance Plans offer attractive charges and provides a good benefit structure. Before you invest in the best ULIP plan in India, you need to understand more about it in detail.
Let’s start with what is ULIP?
ULIP Plan is a unique policy that offers the dual benefit of investment and insurance in a single product. However, you will find several myths concerning ULIP plans. So, if these myths prevent you from buying the best ULIP plan in India, you need to know the facts.
To separate facts from misconceptions, we have addressed some of the most popular myths associated with ULIP plans. Keep reading to know more.
Myth 1: Costlier Charge Structure
Do you really believe that ULIP plans are expensive? Well, let’s break it down one by one and start by understanding the structure of a ULIP plan. So, every time you pay a premium towards a ULIP plan to your insurance provider, the premium is invested in the funds of your choice. It is done after deducting charges for services provided such as the life insurance cover, fund management and others.
It is essential to note that IRDAI (Insurance Regulatory and Development Authority) has capped charges (excluding the life insurance coverage charges) that a life insurance company can charge on a ULIP at 2.25%. This is done on the condition that you invest in the product for more than ten years, making it more affordable than one may think.
Myth 2: Volatile Returns
ULIP plans are basically an insurance product, so thus it presents less risks compared to mutual funds and ELSS schemes. You will find equity funds that are considered risky, debt funds that are not and balanced funds that combine both funds’ risk. You can decide to invest in different funds available for selection based on your risk appetite.
So, in case you thought that ULIP plans are risky, you are mistaken. Depending upon how risk-averse you are, you can choose the best ULIP plan in India for yourself.
Myth 3: Limited Duration for Premium Payment
The premium payment for mostly all the best ULIP plans in India depends upon the plan features. Although some plans do offer limited premium payment tenures, not all plans offer the same. You will need to pay the premiums till the tenure mentioned in your ULIP plan. However, surrendering is allowed but only after completion of 5 years.
And if the due premiums are not paid, your policy would continue, and the applicable charges would be adjusted from your fund value. Resultantly, it would hamper your returns. Thus, paying the premiums due would be a better option.
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Myth 4: Returns Double in a Shorter-Term
Many people believe that ULIP plans can double the money invested after only 3 or 5 years. And this assumption has resulted in a lot of miss-selling by untrustworthy agents. Yes, the equity funds in the ULIP plans promise the highest returns.
However, you cannot expect your investments to double if the market is in bad shape. Moreover, the concept of short-term is another misconception. Usually, nothing yields good returns in short tenures. So, to ensure that your investments grow, you should hold your investments in equity funds for at least 10 to 15 years. And then, you can expect double or close to double returns.
While these were some of the myths of ULIP plans, find below their benefits. To ensure that you choose the best ULIP plan in India, check if they offer these benefits or not:
- Flexibility
The best ULIP plan in India offers a whole host of high, medium and low-risk investment options. Plus, they are available under the same plan. Also, they provide the flexibility to choose either the sum assured or the premium based on your needs.
You can also increase your investment portfolio through top-ups to make the most of investment opportunities. It can be due to any change in the external environment or your own income flows.
- Transparency
Before you buy a ULIP plan, the charge structure, value of an investment, and expected return rate return for the complete policy tenure are shared. You will also get the annual account statement and quarterly investment portfolio, which will ensure that you are aware of your investment portfolio’s status. However, this benefit depends on your insurance provider as well.
- Liquidity
If an unforeseen event takes place, the best ULIP plans in India also let you make a partial withdrawal. However, it is allowed after the first five years of the plan.
As stated above, you should ensure that the plan you choose offers these benefits and more if there are any. It is extremely crucial that you choose a reliable insurance provider for the same. You can research online, read the policy wordings of the different plans that are offered, compare different plans, and pick the one suiting your needs the best!
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