Phone NumberTo Buy: 1800-258-5899 (9 am to 6 pm)

|

Emailcustomerservice@canarahsbclife.in

|

Locate BranchLocate Branch

9 Myths About ULIPs - Demystified

dateKnowledge Centre Team dateApril 30, 2021 views91 Views
9 Myths About ULIPs - Demystified

Myths and rumours have been a part of our lives since the advent of human civilization. At times, these myths help us survive the unknown, however, many times they also hold us from achieving the best.

For example, popular myths about a great investment option may hold you back from using it to achieve your goals. Unit-linked insurance plans or ULIPs are also one such investment plans, which suffer a long list of myths due to misunderstanding and lack of awareness.

Nowadays, ULIPs are one of the most cost-effective, flexible and tax-efficient investment plans in India. But it is likely that you may have never invested in ULIPs due to one of the following myths associated with them:

Myth 1: ULIPs are Expensive

ULIPs are one of the most cost-effective investments in India, especially the online ULIP plans. Online ULIP plans like Invest 4G from Canara HSBC Oriental Bank of Commerce Life Insurance only applies two charges to your policy:

1. Fund Management Charge (FMC) &

2. Mortality charge (for the life cover amount in the policy)

The FMC has been capped at 1.35% of the fund value by the industry regulator IRDAI. On the other hand, the mortality charge is a nominal amount that also goes away after few years.

The mortality charge is applicable due to the life cover in the policy. The life cover is the difference between the guaranteed sum assured and the available corpus in your ULIP plan. Thus, the moment your corpus outgrows the guaranteed sum assured, the mortality charge becomes zero.

Learn more about mortality charges in a ULIP.

Beyond that, you can even choose to receive the deducted mortality charges back upon maturity. Thus, FMC would be the only cost associated with your ULIP investment.

At the same time, while it is inexpensive to invest in ULIPs, it is also affordable. For example, Invest 4G ULIP plan, allows you to start with a minimum investment of Rs. 24,000 p.a. or about Rs. 2000 p.m.

Myth 2: ULIPs are Risky

ULIP plans are like a modern sedan that can do 50 kmph or 150 kmph, depending on the road and preference you have. If you want to cover great distances you can take the highways and drive at 150 kmph. However, if you want to visit your relative a few blocks away, you will take a town road and drive slower.

Similarly, ULIPs provide you with multiple risk options:

  • Equity funds for high-risk-high-return investment
  • Debt funds for low-risk-stable-return investment
  • Balanced Fund if you want to choose a middle path instead of the extreme ends
  • Liquid Fund for the times when you just need to preserve your capital

Also, you have the option to switch between these fund options at any time you want to switch from high to low-risk investment. In fact, with Invest 4G ULIP plan you can automate this switch so that your ULIP investment automatically, shifts the gears to lower the risk. This option is called automatic portfolio management strategies.

Myth 3: ULIPs don’t Offer Good Returns

Once again, ULIPs are similar to your car. If you drive on a good highway you can more likely maintain a higher speed and arrive at your destination in much comfort. However, if the highway is bumpy, so will be your ride, regardless of how good your car is.

Returns in ULIP plans depend on the performance of the market forces, especially if you are investing in equity or a balanced fund. If you want a more stable return profile, debt and liquid funds are better choices.

However, a better mode of choosing your fund is based on the time you have for your goal and your risk appetite. For example, if you can invest for 10 years, equity funds are a good place to start. But, if you have less than 5 years left, you need to switch to debt funds.

Myth 4: Life Cover Decreases if the Markets Hit Low

The fact is your life cover in ULIP policy is not affected by the fund performance or market movements. The reason behind this safety of life cover is the mortality charge and how it is applied to the policy.

For instance, imagine you have a ULIP policy with a life cove (guaranteed sum assured) of Rs. 20 Lakhs. Consider this cover as a term insurance cover. The mortality charge applicable to your policy could be about Rs. 2000 p.a. if your age is near 30. The mortality charge is deducted out of your fund value every month.

Thus, your ULIP has two distinct components:

  • Life insurance cover
  • Investment folio

    Since the premium for the life cover is separate from the investment portfolio, your life cover remains stable regardless of the performance of your investments.

  • ULIPs for planning your retirement

Myth 5: Returns are Doubled in a Short Period

Almost every investor who is eligible for buying a life insurance plan would be fighting to invest in ULIPs if this was true. The return on your investment in the ULIP plan is dependent on the following factors:

1. Market performance

2. Type of fund you invested in

It may also be affected by the frequency of your investment, especially if you invest in equity funds. For example, SIP investors may face lower return volatility than lump-sum investors.

Learn the difference between a ULIP and SIP.

So, there is no guarantee of returns in ULIPs. But you can invest as per your appetite for digesting the bumps in the market.

Myth 6: ULIP does not Provide Sufficient Life Cover

ULIP being an investment plan is only supposed to provide financial safety to the specific goal you are trying to achieve. For example, your goal is to build a corpus of Rs. 45 lakhs for your child’s higher education in 15 years. If you use a ULIP plan to build this corpus, you are providing financial safety to this goal of your child.

Meaning, if anything happens to you before achieving this goal, your child will still get the promised corpus for his/her education. Thus, the ULIP plan protects only specific financial goals.

You need a term insurance plan if you want to protect your family’s financial needs. The term insurance plan will not only provide adequate financial protection but will also be more cost-efficient.

For example, a Sum Assured of one crore term insurance costs Rs. 10,000 to 15,000 annually if you are 30 years old. However, a ULIP plan with Rs. 1 Crore life cover would need an annual premium of about Rs. 10 lakhs.

Myth 7: ULIPs cannot be Discontinued

Although you are likely to receive better benefits if you continue your investment for the entire term, you can discontinue the investment midway if necessary. The only period in which you should avoid discontinuing the policy is the lock-in period, which is five years long.

If you stop investing in the ULIP policy in the first five years, the policy acquires a surrender value. The surrender value could be less than the invested value of the policy, based on the number of paid premiums.

If you discontinue your policy after the lock-in period of 5 years, the policy can continue without a break.

Myth 8: ULIPs do not Allow Investment of Surplus Funds

ULIP plan allows top-up investments throughout the year, even after you have paid the entire due premium for that year. However, it is not advisable as any investment which exceeds 10% of the life cover amount does not get any tax benefits in ULIPs.

For example, if you have a ULIP policy with a life cover (sum assured) of Rs. 10 Lakh, and an annual premium is Rs. 80,000, you can make an additional investment of Rs. 20,000 per year without consequences. However, if you invest Rs. 30,000, the extra Rs. 10,000 will not receive the tax deduction either under section 80C or at maturity.

Thus, you are not advised to invest the ad hoc surplus income to ULIP policy, even though you can.

Myth 9: Premiums of ULIPs are to be Paid for a Limited Tenure

In the ULIPs plan, there is an option to pay policy premium either for a limited period or go for the entire policy term. However, in any case, it is necessary to invest in the plan for at least five years. This will allow your policy to continue without acquiring cash value.

Otherwise, unless you have selected a premium payment tenure less than the policy tenure, you should continue investing until you achieve your goal.

Related Articles

Browse by Categories

Get a Call Back

Do you want us to call back Please fill the form below

Annual Income (In Lacs)

Our Products

TERM Insurance PLAN

TERM Insurance PLAN

Whole life cover option available

Increase your life cover with changing life stages

Return of premium & in-built protection options

Multiple premium payment options

Avail tax benefits on premiums paid as per tax laws

ULIP PLAN

Unit Linked Insurance Plan

8 funds and 4 portfolio strategies to invest

Loyalty additions and wealth booster

Return of Mortality Charge is available on Maturity under all three cover Options

Flexibility of switching between the fund options to take benefits of market movements or change in risk preference

Pos Easy Bima Plan

Top Benefits

Hassle free

Get double life cover in case of accidental death

Choice of flexible premium payment and policy term

Avail tax benefit on premium paid

Frequently Asked Questions

How Savings Plans by Canara Help You?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits.

Who should invest in a Savings Plan?

Savings plan require you to invest a pre-decided amount on a regular basis. People with a regular stream of income who require a lump-sum amount after a period should opt for a savings plan. Working professionals, self-employed people and businessmen should consider a savings plan to meet their long-term financial obligations. Savings plans are also ideal for people who are risk-averse and want to accumulate funds through relatively safer mediums. These plans inculcate financial discipline in policyholders which make them crucial for every portfolio.

What is saving plan?

A savings plan is likely to be different for everyone depending on the financial goal, risk profile, returns, and investment horizon. If you are young and want to save for your retirement, ULIPs like Invest 4G or Titanium Plus plan would be the best option. You are likely to create a large corpus by your retirement through market-linked returns. If capital protection is your aim, then traditional insurance plans such as Guaranteed Money Saving Plan should be suitable for you.

How much money should you put in savings each month?

The amount that should be invested in a savings plan each month depends on the income, existing financial obligations and the long-term financial goal. If you have a steady income, you should save at least 20% of your monthly income. It is not necessary to invest your entire money into a savings scheme as investments should be diversified. Ideally, you should aim to have a financial buffer of over 10 times of your annual income.

Read More
Saving plan for retirement

The Invest 4G plan with its multiple investment options and various portfolio management strategies for capital protection is an ideal saving plan for retirement.

Saving plan for future

The Smart Goals plan with its unique features such as modification of the sum assured partial withdrawal and fund switch can help you plan for your long-term financial goals.

Saving plan for girl child

The Future Smart unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance is the ideal savings plan for the girl child.

Where should I invest my money?

You should spread your investments across financial instruments. However, having a suitable savings plan in your portfolio is extremely important. It ensures financial stability and also helps in fulfilling short, medium and long-term monetary goals.

What is a good age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the capital gets adequate time multiply. Even a small amount invested for a long time can give substantial returns due to compounding.

Tax Saving Investment for retired mother

Savings plans are tax-efficient investment instruments. Samridh Bhavishya traditional savings scheme designed to ensure regular income after retirement is the best savings plan for retired mothers.

Should you use a savings plan for retirement planning?

Yes. Retirement planning is one of the most important financial decisions of our lives. Saving plans offer a host of features that may help you build your retirement corpus. Some of the saving plans like Guaranteed Income4Life offer guaranteed returns at policy maturity. Such returns can act as a regular income stream even after your retirement to help you stay financially stable.

Are saving plans beneficial for managing unexpected expenses?

Yes. Best saving plans in India offer partial withdrawal system that can be utilized during your rainy days. Being financially prepared to tackle such odds will help you manage any unforeseen expenses in a smooth manner.

How to save tax by using savings plan?

Saving plans are known for helping us achieve our financial goals. Best saving plans allow you to grow your wealth while providing life cover. Saving and investment plans are also beneficial for tax planning. Premiums of savings cum protection plans come with tax benefit under Section 80C of the Income Tax Act. Moreover, proceeds received upon the death of the policyholder or upon the maturity of the policy are tax free under Section 10 10(D).

What is the right age to start saving money?

When you plan to invest in a financial product, it always pays well to start early. The earlier you start saving and investing, the better. When you start investing early, the appreciation in capital is significant. Even a small amount invested for a long time can give substantial returns due to compounding.

Read More
How a savings plan can help in building your child’s education fund?

Saving plans help in building wealth over time against the investments that you make. Choose the best savings plan to build an education fund for your child. The best saving plan for kids offered by Canara HSBC Oriental Bank of Commerce Life Insurance eases the stress of planning your child's future by providing a lump-sum payout on the investment.

Read More
How Savings Plans by Canara HSBC Oriental Bank of Commerce Life Insurance can help you?

Every person has a unique reason to save and invest. With ULIP savings schemes, the company caters to people seeking wealth creation through capital appreciation. Contrarily, the traditional plans can help you save for important life goals without worrying about the fluctuation in fund value. All major savings plan offers partial withdrawal facility that can help you take care of unplanned contingencies. With savings plans from Canara HSBC Oriental Bank of Commerce Life Insurance, you get adequate flexibility while investing and receiving the savings benefits.

Read More
Call BackCall Back Pay PremiumPay Premium
Chat
Back to top