What to Do With Your Existing ULIPs?

Many investors have been the victims of mis-selling of insurance policies, where they have been misled into believing the statements of unscrupulous agents and mistakenly invested in ULIPs without understanding the benefits and the nature of the investment option.

If you’re one such individual who has invested in ULIP without having a complete understanding, it is natural to wonder about what to do with your existing Unit-Linked Insurance Plan. If that’s the case, then this article may be able to help you out.

 

The need for investment in ULIP

 

As an individual, you probably have these two priorities in mind - creating wealth and protecting your family financially. One of the ways to accomplish both of these goals of yours is through a ULIP investment. The primary advantage of a ULIP is that it offers dual benefits, that of insurance and investment.

The premiums that you pay towards a ULIP goes towards providing you with a life cover and are also invested in market-linked funds of your choice. By investing in market-linked options, you get the chance to create wealth over the long-term. That’s not all. If something were to happen to you during the tenure of the ULIP, the life cover under the plan would be paid out to your nominees, which they can use to take care of themselves and further their life goals.

By investing in the suitable ULIP plan that fits your needs and requirements, you can cover all bases comprehensively.

 

Understanding the controversy surrounding ULIPs

 

Although the inclination for investment in ULIP has always been high, it has also been marred by controversy. One of the primary controversial elements associated with such plans were mis-selling, where agents would often promise exceptional returns on market-linked investments and mislead investors into purchasing Unit-Linked Insurance Plans.

ULIPs invest in market-linked funds, including equity funds, which carry high-risk. And as such, they don’t offer any guaranteed returns. The returns from a typical ULIP investment is heavily dependent on the movement of the market. Unscrupulous agents would often hide the market risks or refrain from notifying the investors about the risks involved with investing in ULIPs. This led to investors purchasing the said plans without adequate and transparent information.

Also, insurers levy several charges on Unit-Linked Insurance Plans such as premium allocation charge, mortality charge, fund management charge, and policy administration charge, being a few of them. These charges are also not conveyed properly to investors by agents, which leads to a gross misunderstanding of ULIP insurance plans.

 

Re-evaluating and understanding the existing benefits of ULIP Investment

 

Recognizing the controversy surrounding ULIPs, the Insurance Regulatory and Development Authority of India (IRDAI) imposed several regulations that put a cap on the charges levied on ULIPs in the year 2010.

Despite the measures taken by IRDAI, if you invested in ULIP without gaining a complete understanding and don’t know what to do with your existing ULIPs, don’t worry. Here are a few things that you may consider doing.

1. Re-evaluate your position

The first thing that you need to do is to take a step back and re-evaluate your position. If you’re still within the 5-year lock-in period of a ULIP, then there’s unfortunately very little that you can do. So, the preferred way to proceed would be to wait out the lock-in period before making any move. Your ULIP may still have time to turn around, so be patient.

On the other hand, if you’ve completed the lock-in period, take a look at your ULIP returns. Are they positive or negative? If they are positive, then you may choose to continue with the ULIP investment. On the other hand, if they are negative, then you may consider following the next step.

2. Consider switching funds

If you find that your ULIP fund has consistently been underperforming and is negative, you can consider switching the fund. You can either move to a completely different asset class or stay within the same asset class but move to a different, better performing fund.

3. Utilize the top-up facility

Unit-Linked Insurance Plans come with a top-up facility that allow you to make additional premium payments subject to policy terms & conditions. These additional payments may have the probability to enhance the return generating potential of the plan by increasing the investment corpus. However, this method is suitable only if you’re planning to remain invested for the long-run.

 

Conclusion

 

A ULIP is a long-term investment option that requires you to stay invested for a significant number of years. This would mean going through the different phases of market volatility and continuing to persist with the ULIP investment.

Understanding them properly can help you appreciate the investment option better. Also, here’s something you should know. When determining the suitable ULIP plan to invest in, always ensure that you read through the policy document thoroughly to avoid unnecessary problems and hassles in the future.

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