Busting 6 myths surrounding ULIPs

Jan 04, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

Wondering whether ULIPs are the right choice? It’s time to shed light on some facts.

Did your financial advisor miss out on Unit-Linked Insurance Plans (ULIPs) while preparing your investment plan? This is highly probable, but also a bit strange. ULIPs are very much a potent investment avenue for capital appreciation. Yet, many people still overlook this investment tool.

Now, there can be no denying the fact that ULIP earned a bad name for itself in the past. But its re-emergence is nothing short of spectacular. A lot has changed thanks to the efforts of the Insurance Regulatory and Development Authority of India (IRDA). The IRDA recalibrated the product to suit investor needs. But sadly, it is still bogged down by misconceptions. So, it is time to put things in perspective.

Myth #1: ULIPs are costly

The previous-generation ULIPs required you to pay the commission and certain charges upfront. But the revamped ones stretch these charges evenly over the lock-in period of five years. And if you buy a ULIP online it’s even easier on the pocket.

Also, the insurance regulator has ensured that the charges are not very high anymore. Charges have been capped at 3% for policies with tenure up to 10 years, and 2.25% for policies beyond 10 years.

And in case you want to know what charges we are talking about, they are fund management fees, administration charges, and mortality charges, among others.

Myth #2: ULIPs are risky

You may hear a lot of people say ULIPs are risky. But the fact is as the policyholder, you have control over your investment choice. You can opt for high-risk equity, low-risk debt funds, or even go for a balanced fund that offers relatively low risk. The choice is entirely yours. You can assess your appetite for risk before choosing the investment option.

  • Myth #3: Surplus funds and ULIPs are not a good match

There is no need to worry if you have excess money coming your way. Just top-up your ULIP premiums with the surplus funds. You can do this as many times you wish. Do it every time you have cash to spare during the tenure of the plan. What more? Top-up premiums also offer tax benefits.

  • Myth #4: You cannot discontinue ULIPs

Investors are free to move out of a ULIP any time after the five-year lock-in period ends. You do not incur any surrender charges if you discontinue the policy before maturity. However, surrendering the policy midway is not a wise decision. You will not achieve as much as with the full tenure in terms of returns. Take this step only if you are facing a severe fund crunch.  

  • Myth #5: Your life cover could reduce in ULIPs

The insured sum in ULIPs is insulated from market fluctuations. The equity returns may diminish if the market falls. But the sum assured will always remain the same. If the policyholder dies, ULIPs pay the higher among the sum assured or the fund value.

Like all traditional insurance plans, ULIPs come with riders. Choose from among accidental death benefit, premium waivers, and many others. Make your selection depending on your financial needs. That would make the policies more beneficial for you.

  • Myth #6: ULIPs offer no tax benefits

The top-ups made in a ULIP plan are eligible for deduction under Section 80C of the Income Tax Act. You also get an exemption under Section 10 (10D). In this respect, they are like regular premiums. To avail the tax benefits, ensure that the premium does not exceed 10% of the sum assured.

The last word

As an investor, you are entitled to the best of both worlds when investing, and ULIPs fulfill these conditions. Today’s ULIPs offer a wonderful avenue for capital appreciation. In this, they combine the dual benefit of insurance and tax saving. Plus, if you buy a ULIP online, they are affordable, giving you more power to invest!

Interested in exploring ULIPs? Checkout our iInvest and iMaximize plans.

To know about AegonLife’s life insurance products like term insurance plans and other products like health insurance , visit our home page.


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