How well do you know your ULIP plans?

Life Insurance is one of the best ways to ensure that you provide a suitable financial backup to your family in case you perish from the world or to get a good return on investment in case you survive the insured period. Another good way to beat inflation is to invest regularly in stocks and earn when the market rises. But the best way to ensure that you have both the things in hand - a life insurance and good investment earnings would be opting for a Unit Linked Insurance Plan (ULIP). Yes, ULIP not only covers your life risk but also invests your savings in proper funds based on your risk appetite to produce the desired results. These are great product offering that combines benefits of insurance and investment in one instrument.

However, inspite of ULIPs being one of best investment tools there are few misconceptions about their objectives, liquidity, returns, functioning and pricing. The article clarifies these misconceptions inorder to buy suitable ULIP policy.

 

ULIPs have higher costs

One of the common myths that follow across people is that ULIPs are costly investment insurance when compared to other investment products mostly because of the high premium allocation and fund management charges. But such is not the case. ULIP have undergone significant changes. With the introduction of low cost ULIPs, the charges are much lower than before and quite affordable to customer to investment in two way beneficial product.

 

 

Risky Investment

ULIPs are a risky investment product as they only invest in the equity market is the second big misconception. However, the actual danger lies in your risk taking appetite. So, you don’t have to be scared. You need to carefully choose the fund with a strategic plan to switch them as and when required between risk or debt funds.  Alternatively, you can also opt for a balanced fund (i.e., a mix of equity and debt fund). In ULIPs the biggest advantage is that you have the option to switch between funds based on your lifestyle and changing risk appetite. So if the market is volatile you can work out accordingly on your fund investments.

No Surplus funds

You can anytime purchase a ULIP plan with lower premium and whenever you get some money you can top it up. The good point is top-up premiums have the same tax benefits as regular premiums. Anytime during the tenure of the ULIP policy you can top-up premiums.

Decreased life cover

Some investors feel that because ULIPs are associated to equities, life cover decreases if the market dips. But it’s absolutely incorrect. Your life cover is already been reserved and remains the same even in the case of a bear market. ULIPs either pay the complete life cover or the fund value, whichever is higher, if insured person passes away.

No health or accident cover

 

ULIPs come with twin benefits of insurance and investment. Just like other insurance products they too have rider options such as Accidental Death Benefit, Waiver of Premium, Family Income Benefit, Hospital Cash Benefit etc. Since partial withdrawals are available, additional cash requirements in such extremities or calamities can also be taken care of.

ULIP are modern investment option to keep the financial safety element in traditional style. They offer flexibility as well as much ease for switching funds accordingly to your risk appetite. It is advisable during your younger days invest in risk based funds and then move to debt funds once you earn the requisite money. Take an advice from financial planner and then choose your funds carefully.