The perception of ULIPs as an expensive and a risky investment tool continue to persist. However, over the last few years, ULIP plans have emerged as a preferred investment vehicle to not only provide insurance cover but to also gain advantage of equity investment in an individual's portfolio.
Here are the five key myths associated with ULIPs :
Myth 1 : ULIPs are expensive
Fact : Charges in ULIPs have reduced significantly over the years and are capped making them more cost effective for customers
The new age ULIPs have evolved a lot from their predecessors. Charges in new-age ULIPs are spread over the policy term. The fund management charge has been capped by the regulator at 1.35% and other charges like policy administration charge and premium allocation charge have reduced significantly over the years.
Besides, Bajaj Allianz Life Insurance recently introduced Return of Mortality Charge (ROMC) feature which returns the entire mortality charge paid by the policyholder at the time of policy maturity. Such features further bring down the cost of ULIPs significantly.
Myth 2 : Market volatility brings down insurance cover
Fact : Life cover under the ULIPs remains unaffected regardless of market unpredictability
There is a belief that the benefit payable in case of death under ULIPs shrinks if the market plunges. However, the same is not correct. In case of the death of the policyholder during the policy term, higher of Sum Assured or the fund value, is paid. In some types of ULIP investment, the death benefit is sum assured plus fund value. Few products also have the option of various riders, including accidental death benefit or critical illness, to get the best-possible insurance cover.
Myth 3 : ULIPs are risky
Fact : A policyholder has an option to select the fund based on his risk-taking appetite
ULIPs come with various fund options including liquid and debts fund for the conservative investor, and equity funds of high and moderate risk. One can opt for an option based on their risk appetite. There are products which have an option of fund switching, that enable you to switch between funds in times of market upturns or downturns for maximum benefit.
Myth 4 : You lose all money if you are unable to pay premium
Fact : You do not lose all your money
Sometimes your financial circumstances might make it tough to pay premiums. A common myth is that the policyholder stands to lose the entire invested amount if he/she is unable to pay the premium. But this is not true.
In the event of non-payment of premium in ULIPs in first 5 years, the policy status is changed to discontinue. The fund value is moved to a discontinued fund, where the fund continues to earn returns, subject to deduction of discontinuance charges. Hence in the event of non-payment, the premiums already paid are not forfeited as the discontinuance value is payable after completion of 5 years of lock-in period.
If the policy has completed 5 years, the customer has an option of continuing the policy as a paid-up policy. The customer also has the option to surrender the policy without any surrender charges after payment of at least 5 premiums.
Myth 5 : ULIPs give low returns
Fact : If chosen wisely, it provides best returns from the market
New- age ULIPs have emerged as a front runner for customer who want to invest in the equity market and if we were to analyse fund performance of ULIPs, it has given consistent returns over the long-term. Further, ULIPs are also exempt from long term capital gain tax.
ULIPs provide significant capital appreciation over a long term allowing the policyholder to achieve their life goals. Features such as tax benefits, low charges, switching and more have transformed ULIPs into a one of the best investment option for the investor who wants to gain the maximum return on his/her investment to live the life of his/her dreams!
Learn more about ULIP plans and investment tips to achieve your life goal with Life Insurance Guide from Bajaj Allianz Life.