Top 7 myths and facts about ULIP

Want to invest in the market but are skeptical because of various myths floating in the market? Clear your doubts regarding the myths you heard of ULIP plans.

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5 mins 6 secs
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Last Updated - May 5, 2023
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Unit Linked Insurance Plan (ULIP) is a combination of investment as well as Insurance. These are the two major factors that form the basis of effective financial planning. There are many people like you, who want to invest in the market but are skeptical because of various myths floating in the market. Clear your doubts regarding the myths you heard of ULIP plans.

What is a Unit Linked Insurance Plan?

Before going through the myths and facts associated with ULIP, get to know more about ULIP. Unit Linked Insurance Plans are insurance policies that are linked to the market fluctuations, which help in wealth creation along with life protection. 

In such policies, a part of premium is diverted towards your life cover and the rest is invested in a pool of funds, that consists of equity, debt, or a combination of both. The wealth creation under this policy depends on the fund you choose to stay invested. Nowadays, ULIP plans are most effective and an ideal for individuals who desire to invest and have protection for life. In spite of being an efficient plan, there are a few myths that will be busted in this article with facts to give you a clear picture related to ULIP plans.

Myths to clear about ULIP

Myth 1: You can’t discontinue the ULIP Plan

There is a myth regarding the ULIP plan that once you have invested in this plan, you cannot withdraw or stop investing. ULIP plans have a lock-in period of 5 years and one can discontinue their plan after this tenure. There are no surrender charges or discontinuation fee that is applicable post lock-in period.

Myth 2: It has high risk associated with it

People usually think that ULIP plans are associated with higher risk as they are linked with market volatility. However, the fact is that the risk associated depends on the fund you have chosen to invest. You can choose the pool of funds based on your financial goal and risk tolerance level.  One can choose an aggressive investment strategy or opt for a debt fund for more secure investment along with insurance.

Myth 3: Life covers reduces with market variation

People have this perception that the life cover reduces in ULIP as it is linked to market volatility. However, the fact is that the cover amount of your life insurance stays unaffected by market movement or the fund performance. 

Myth 4: Doesn’t provides good returns

Since ULIP is linked with the market, the returns are highly dependable on funds you choose. You can choose to stay invested in equity, debt or a combination of both equity and debt in different ratios. It is important to understand your risk appetite and choose the fund pool that suits your financial goals. The more risk you are exposed to, more are the chances of having a higher return. The returns from ULIP are totally dependent on the investment pool and its performance. In order to fetch good returns, it is advisable to stay invested for a longer period.

Myth 5: ULIP’s are expensive as compared to others

ULIP’s is an insurance plan that is combined with an investment plan. Since they are linked with the market, people assume their premiums would be on the higher side. However, IRDAI has set a maximum limit of 1.35% as fund management charges. Since ULIP plans are dynamic in nature, it yields higher returns as well as provides protection against Life.

Myth 6: Investing in ULIP has no tax benefits

People usually invest with the purpose of saving on taxes. However, the myth states that ULIP’S are exempted from tax savings. The top-ups that one avails in a ULIP plan are eligible for tax deductions under Section 80C of the Income Tax Act. Also, one can avail tax exemption under Section 10(10D). Make sure that the premium does not exceed 10% of your cover amount to avail tax exemption. 

Myth 7: You have to pay premium only for a specific period of time

There is a myth that states you have to pay premiums in ULIP plans just for a specific period and that the returns will be manifold. To burst this myth, the fact is that there is an option of paying the premium for a limited period or for the entire policy term. One needs to stay invested in a ULIP plan at least for a period of 5 years.

Choosing an investment plan that also provides life insurance is the need of the hour. It is ideal to compare various ULIP insurance plans so that you can save and find the best plans for yourself. You could compare and buy insurance plans from MyInsuranceClub. For better understanding of what ULIP is and some facts related to investment in ULIP plans, you will be assisted by trained and certified insurance professionals. Start your investment and insure your life with a single plan.

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Sachin Telawane is a Content Manager and writes on various aspects of the Insurance industry. His enlightening insights on the insurance industry has guided the readers to make informed decisions in the course of purchasing insurance plans.