Why Are ULIPs Considered A Tricky Investment When They Are Not?
An investment in a Unit Linked Insurance Plan (ULIP) has always been a topic of debate. The primary reason for the debate can be the previous reputation of a ULIP policy in the market. After the criticism, a ULIP policy has re-emerged into a better investment product. However, many of you might still assume a ULIP investment is risky. Therefore, let’s clear your perceptions and understand why a ULIP policy is no longer tricky for you:
1. Tenure
A ULIP policy is a long-term investment, which might have a minimum lock-in period of five years. During the on-going tenure of the ULIP policy, you might not be able to withdraw your funds. Since the liquidation of funds might not be an option until the completion of five years, many of you might not choose a ULIP policy.
On the other hand, the long lock-in period can be beneficial for you. If you stay invested in a ULIP policy for 5 years, you can grow your money into a large corpus in the future. With an enormous corpus, you can meet your life goals, such as purchasing a new house or a car, funding your child’s education, and so on. In addition to this, your insurer can provide you with loyalty additions if you do not surrender the ULIP policy after five years. After your ULIP policy matures, your insurer can provide you with a sum assured or fund value, whichever is higher, along with the accumulated loyalty additions.
2. Cost
A ULIP policy was first introduced in the year 1971. After its introduction, it was severely criticized due to high costs. The exorbitant costs significantly reduced the sale of ULIP products in the market. Since the sale declines, a ULIP product had to be taken down from the market.
The Insurance Regulatory and Development Authority (IRDA) reintroduced some major changes in the ULIP policy in 2010. After the re-emergence of a ULIP policy in the market, it won the hearts of many investors. The IRDA had made significant changes in the charge structure of a ULIP policy, wherein a ULIP policy turned into an affordable product from an expensive affair. The premium of these plans dropped down as well as it levied the four most common ULIP charges, such as premium allocation charge, policy administration charge, fund management charge, and mortality charge.
3. Returns
A ULIP policy is a market-linked investment product. Since the risks involved under a ULIP policy can be high, you might not wish to put your money at stake. The fear of market volatility can keep you away from a ULIP investment.
Although a ULIP investment can be directly linked to the market, the returns can depend on your risk appetite, choice of funds, and financial goals. Before you invest in a ULIP policy, you should review the market scenario and check the past performance of the ULIP funds. A ULIP policy can also provide you with a switching feature to shift between equity funds and debt funds as well as secure your invested capital from market fluctuations.
To conclude, a ULIP policy can be worth your life long savings irrespective of the market risks. Therefore, see to it that you park your money under a ULIP policy to reap the maximum benefits. Don’t let the myths and perceptions stop you from making the most of a ULIP policy. If you are still skeptical about a ULIP product, you can talk to a professional who will help you to debunk the myths and help you gain a better understanding of what is ULIP plan in detail.
