The finance sector has gradually made a lot of progress and has come a long way from where it used to be over the past several years. Insurance has grown as a process of guarding the interest of people from loss and uncertainty. While earlier, investing in life insurances was considered to be nothing but plain simple and boring, the introduction of Unit Linked Insurance Plans, also known as ULIPs, has changed significantly. Even the Unit Linked Insurance Plans have been a popular investment strategy for a while now, and since their first introduction in 1971, things have changed significantly. The initial popularity of Unit Linked Insurance Plans was short lived, and thanks to the high allocation charges inherent in the product, along with the complex structure of these plans, the customers lost their interest soon.
In order to revive this important investment asset, the Insurance Regulatory and Development Authority of India put some serious restrictions on the mandatory limits and other charges that were charged by these Unit Linked Insurance Plans in the year 2008. This allowed to revamp the image of ULIPs amongst investors as an attractive and beneficial investment option. Despite of these changes, there are still many who consider ULIPs as one of the more complicated options available in market today. In order to release this ‘stigma’ of sorts associated with Unit Linked Insurance Plans, we demystify some of the myths:
- ULIPs are more expensive compared to other forms of investment:
As stated earlier, the IRDA has put some serious restrictions on the allocation fee charged by ULIPs. While earlier, one could expect to pay up to 80% of the first year premium as an additional allocation charge towards ULIPs, rendering the purpose of their investment to be in the dark, now things are significantly different. The present charge structure for ULIPs requires the investor to pay something around a single digit fee! This makes them cheaper than mutual funds in some cases.
- ULIPs are a risky investment:
ULIPs give you an option of choosing between the different investments to choose from. As the returns are more volatile in case of capital markets, there is an element of risk involved in these types of investments. However, in addition, there are debt funds, which are not risky, equity funds, which are, and balanced funds, which combines the risk of debt and equity funds. The investor can choose the type of investment they prefer, based on their own personal goals.
