ULIPs: Top five myths you should stop believing in

Unit-linked Investment Plans (ULIPs) are a category of life insurance policy that offers life cover along with as an investment-cum-savings plan with healthy returns. This is an excellent long-term investment instrument. ULIPs are offered by various insurance companies.

Risk factors

The main feature of ULIP plans is market-linked returns. The premium paid towards the plans is divided into two parts. One part provides a life cover, while the other is invested in stock markets. So, naturally there are also various market associated risk factors.

Myths

Due to lack of proper understanding there are several myths surrounding the ULIPs. Here are some of the common myths associated with this product.

Very costly

If you think that ULIPs are very expensive, you are wrong. The IRDA capped ULIP investment charges (excluding life insurance cover charges) at 2.25% if a customer stays invested for more than 10 years.

High risk

The life insurance cover that you buy stays fixed in a ULIP. A typical, ULIP offers multiple fund options based on the investor’s risk appetite. Depending on the level of risk you are willing to take, you can opt for equity, debt funds or a balanced fund to invest.

Low returns

This is perhaps the most common myth about ULIPs. In reality, ULIPs have consistently provided handsome returns to investors. According to market experts, ULIPs have yielded 5-year absolute returns of up to 67%.

Cannot be discontinued

This is another myth regarding ULIPs. The truth is you can discontinue a ULIP after the lock-in period of five years and there are no surrender charges or discontinuation charges after that period.

Life cover uncertainty

While it’s true that ULIPs are market-linked investments, the life cover component of the plan is not related with market risk. Hence, your life cover will stay intact regardless of the market conditions.