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ULIPs are becoming more and more popular as investment options. They are popular due to many reasons. They are a combination of investment and insurance, all in one plan. They also offer multiple tax benefits. If you want to make your first investment, a ULIP could be the best choice as it offers a good amount of flexibility for minimizing risks.
A Unit-Linked Insurance Plan is a combination of life insurance and investment. A part of your premium is invested in funds of your choice, while another part goes towards a life insurance cover. You are allowed to switch and redirect your funds often in search of better returns or greater safety. You can invest in equity, debt, or balanced funds as per your risk appetite.
Disadvantages of ULIPs
Like any other investment product, ULIPs come with their own set of disadvantages. Here are some of the major negatives that you could notice about a Unit Linked Insurance Plan, which are important to know especially if it’s your first investment.
Since a single ULIP is both a life insurance cover and an investment, it might be quite a lot to comprehend for new investors. We are used to one instrument having a single focus and purpose and focus, be it savings, investment, or insurance. Plus, the sheer amount of charges involved might intimidate you as well. While being updated with your insurance premiums, you also need to keep track of your fund NAVs and make constant decisions about switching, redirecting, and investing your funds in the right places so as to gain maximum returns out of your ULIP.
ULIPs generally have a lot of charges associated with them. In the beginning, these charges are more as they go towards policy administration and other aspects of managing your funds. With time the costs increase and your potential returns increase. However, it takes patience. In the beginning, a considerable part of your premium is lost towards charges.
Another reason why you earn less from your Unit Linked Insurance Plan in the initial years is that the market is volatile, and you are still learning how to navigate it. You may or may not take risks when needed, prefer to stay rather safe and miss out on potential opportunities of gains.
ULIPs have a lock-in period of 5 years, before which you cannot withdraw your investments. Even if you surrender your ULIP within 5 years, withdrawal would have to wait until the lock-in period is over.
Most insurers will offer you free switches of your funds up to a certain point. However, after this point switching is chargeable and you really have to weigh your potential profits against the charges incurred.
ULIPs are not at all bad investment products, if you know how to turn their disadvantages around in your favour. Do some solid research and invest in a comprehensive plan like Invest 4G which offers multiple avenues and great flexibility.
Canara HSBC Life Insurance's Invest 4G is a ULIP which offers a wide range of choices such as 7 different funds and 4 different portfolio strategies to choose from. It also offers Return of Mortality Charges so that charges don’t eat into your fund value. Additionally, there are also Loyalty Additions and Wealth Boosters for a cherry on top. So, what are you waiting for? The plan for fulfilling your dreams is just a few clicks away!
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