ULIPs: 5 myths debunked

It’s important to note that ULIP plans were expensive way back in 2008. But times have changed.

“ULIPS are affordable and help people stay protected with life covers. It helps in the growth of wealth by getting market-linked returns at the same time. IRDAI also capped ULIP investment charges, excluding the life insurance cover charges at 2.25 percent if a customer stays invested for more than 10 years,” Thakkar explains.

As per Thakkar, ULIP caters to all kinds of risk appetites and provides us the good option of funds to invest according to one’s life goals. This means it doesn’t carry a high risk.

“At the time of purchasing the policy, users can choose the fund they wish to invest in. Depending on the level of risk they are willing to take, they can opt among other choices for equity, debt funds, or a balanced fund that is a mix of equity and debt,” Thakkar opines.

Most people are misled into believing that one cannot surrender a ULIP, before the maturity date.

However, this is not true as people have the choice of surrendering policy before the date and after surrendering the policy post the lock-in period, one’s fund value is paid out.

Another myth is that ULIPs provide high returns over the long term.

According to Thakkar, ULIP is the market-linked plan that is dependent on the asset class one picks. Just like any other financial product, the more risk one takes, the more returns he/she can potentially earn.

As per Nitin Shahi - Executive Director of FINDOC, Financial Services Group, another major myth regarding ULIP is that market volatility has an impact on its life cover.

However, this is not the case at all.

"Even if the market would hit an all-time low, the life cover which is promised at maturity would remain the same. In case of the policyholder's death, ULIPs recompense the entire life cover or the fund value, whichever is greater," Shahi opines.