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.

What is a ULIP?

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.

Complexity

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.

Costs

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.

Market realities

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.

Lock-in period

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.

Switching charges

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.

However…

• Any investment product is complex, and once you get a proper idea about it, ULIPs can be your best friends. Plus, you will always have a fund manager to guide you.
• The combination of investment and insurance could also be seen as a blessing to avoid the extra time management efforts required for two different instruments.
• The costs of ULIPs have gone down massively since the IRDAI (Insurance Regulatory and Development Authority of India) put a cap on them.
• Plans like Invest 4G offer enough switches for free, so you need not really worry about switching charges.
• The lock-in period of ULIPs can actually be an advantage if you are really eyeing the long term. In fact, a ULIP will reach its true potential in 10 to 15 years.

Conclusion

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.

Invest 4G

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!