While the Mutual Funds industry has marketed their products intensely and gained large mindshare among well-to-do urban Indians, the market-linked product that the Insurance industry has to offer—Unit-linked Insurance Plans (ULIPs)—enjoys a poor reputation in comparison. Earlier, ULIPs were sold and marketed clumsily. Neither the insurance companies nor their customers were comfortable with an insurance product that could be used as an investment.
However, a lot has changed over the years. With good regulation by IRDAI and new-age value additions to ULIPs, these products are not only more transparent today but are also the perfect combination of insurance and investments. Not only do they give the same returns as mutual funds, but they also come with benefits such as tax savings, life cover for your family, lower fund-management charges, and others that mutual funds do not provide.
In this piece, we have debunked a few myths that still persist about ULIPs.
Myth 1: ULIPs Deduct Considerable Amounts from Your Investments
ULIPs today are advertised and sold online, which helps in escaping additional costs because of low customer acquisition costs as well as no agent commissions. Along with that, IRDAI has slashed the 6 – 10% premium allocation and fund management charges to 2.5 – 3%.
Myth 2: Mortality Charges Are an Additional Burden
ULIPs offer life insurance over and above mutual-fund-like returns. If you compare this with mutual funds or ELSS, the money invested in life insurance is at par with the tax you’re losing out on with investments in mutual funds. A ULIP is tax-free and hence works as the best tool to save tax while gaining from the share market.
Myth 3: ULIPs Have High Fund-management Charges
ULIPs have 5-year lock-ins, which result in lower fund-management charges. The logic being that a fund manager for mutual funds has to generate profits in the short term, whereas the same job for a ULIP is done with the comfort of having at least 5 years to make money systematically and steadily.
Myth 4: A Combo of Term Insurance and Mutual Funds Are Better than ULIPs
ULIPs hold the same weight in the share market as mutual funds. Crafted to be share market investment products, its life insurance pay-outs are more along the lines of “additional value” rather than being the main purpose of the plan. A massive pay-out is possible if you opt for a high sum assured and invest your money in safe funds, which is the way to make considerable profits.
Moreover, where a term insurance offers massive pay-outs compared to those of a ULIP, it does not help save any money; term plans are not investments since they have no inherent value. And, while an investment in mutual funds offers quick profits, it is a short term commitment that comes with additional burdens such as high risks and management hassles.
Furthermore, even though ULIPs are fixed and long-term investments, new products offer partial withdrawal of money when needed.
Myth 5: Insurance Is an Expense, It Should Be Treated as One
This was true 10 years ago when the insurance industry had simple products to protect families from financial burdens. Insurance companies now offer holistic products, which on its own are enough to build a strong financial portfolio for the urban Indian.
To conclude, ULIPs today have become all-rounder plans that are a must-have if you are looking to build a strong portfolio. ULIPs are now available integrated as child plans, money-back plans, and other plans. These plans can rightfully be termed as “evolved”.
To speak to ULIPs experts, contact OneInsure at 86559-86559 or firstname.lastname@example.org.
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