Unit Linked Insurance Plans(ULIP) is a dual benefit insurance plan which invests a portion of the premium amount in buying the insurance while the other portion goes in investing into debt or equity or balanced funds. In short, ULIP gives life cover plus investment cum tax benefit. It is a market linked product. It helps in planning for long term wealth creation with security of life cover .The fund management charges, administration, premium allocation charges and the morality charges are deducted from the premium. Policy holder has the flexibility to invest in equity or debt funds according to his/her gusto. Partial withdrawal is possible after a span of minimum 3 years after the investment. There are some unsaid risks that come undeclared. Many insurance agents in order to get hefty commissions lure you of profits with maximum returns about the policies. Don’t fall for such marketing gimmicks.
1. No awareness - firstly understand the product. Know the policy features and the hidden charges associated. Some insurance companies assures fixed returns which is a false promise. The unit value of a ULIP goes up and down according to the market state.
2. Limited tenure - the premium tenure varies according to the plan. When the consumers cannot afford to pay premium for certain tenure the insurers might lie that you enjoy life long cover while paying a small one time premium amount. This does not hold true. The premiums are supposed to be paid till the tenure of the policy.
3. ULIPs are risky - there are different funds available in the market according to the consumers risk factors. The debt funds being at the low risk. The policy holder can definitely opt for the lowest riskier funds. ULIPs offer variety of range options according to the consumers need.
4. The returns double up in short period - many agents just to boost the sales of ULIPs make fake claims that the investor can double the money in few span of years. That’s not the case. If the market is in bad state the investments cannot be boosted and that too in a short term is a hoax. The minimum invested time should me more than 10 years. Unit Linked Insurance Plans are long term investments.
5. Lock in period - many consumers are aware that they have to pay the premium for minimum lock in period. ULIPs are long term investments. Consumers exit post lock in period. If you are financially drained surrender the policy. Discontinuing the product extracts charges that gets averaged over the policy term.
The ULIPs benefit only if you opt for the right plan. Check for your financial obligations and risk taking factor. Do not just look it as a tax saver. There be should be more reasons to it. Do not buy a ULIP for a wrong reason. Do not fall for cheap investment plans. The main reason to write this article was to give a brief outburst on the mistakes about ULIPs.
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