Perceptions play a critical role in human decision making. People take important decisions based solely on perception, but the reality is often very different. In the world of financial products, perceptions can have a significant impact on the acceptability of a product. Due to a lack of financial awareness in India, most financial products suffer due to misplaced perceptions.
Among the plethora of products available in the market, no financial product has been negatively impacted more than unit-linked insurance plans or ULIPs. Even though ULIPs are one of the best investment options, they are considered to be a tricky investment and that too without any factual reasons. Various factors are responsible for the negative perception, but let us try to clear the misconceptions.
Combination of products
If anyone wants to secure his/her family's financial future, he/she will most probably opt for a term insurance plan as they provide substantial cover at affordable rates. In a different scenario, if anyone wishes for capital appreciation, he/she will invest in an equity mutual fund. Mutual funds are known to provide decent returns in the long run. But what if you get both the features in a single product?
Most people get confused because ULIPs are a combination of insurance and investment and provide the best of both products. You can secure the financial future of your family with life cover and get the benefits of capital appreciation at the same time with ULIPs. Since ULIPs are insurance-cum-investment products, many people analyse them on the parameters set for either of the two products and get confused
Even though ULIPs are a combination of investment and insurance, they cannot be treated as an insurance or an investment product. The best ULIP plans provide adequate flexibility and you can choose to use it as an insurance or an investment product. If capital appreciation is your primary target, choose a ULIP with small life cover and opt for an equity fund. ULIPs levy a mortality charge for providing the life cover, which can affect the overall returns in the long-term and so you can opt for a small cover to boost your returns. In such a manner, you can customize your ULIP as per your financial needs and goals.
There may be a lot of misgivings regarding the tenure of a ULIP plan. ULIPs use a part of the premium to provide life cover, while the balance is used for investment. People opting for a term plan take the policy for 20-25 years depending on the time left for retirement. Term plans are long-term investments, but as the premiums are affordable, they do not require substantial resource allocation. The tenure varies significantly for people investing in equity products.
Depending on the financial goal, people invest in equity products for 3 to 10 years or even more. Since ULIPs are a combination of insurance and investment, the optimum tenure varies. You can't expect an ultra-short tenure like ELSS or some equity funds boast of, nor do you have to compulsorily commit for 20-25 years. Even though it is better to remain invested for the long term, if the financial goal demands, you can opt for a 15-year tenure. Many people invest in ULIPs with the target of getting returns similar to short-term equity products and get disappointed.
There are various costs associated with ULIPs like fund allocation charges, premium management charges, mortality charges, etc. Multiple charges have led to a perception that ULIPs are costly products. People also find it hard to comprehend the impact of the various charges. However, the reality is starkly different. Even though there are a host of charges, the maximum fees have been capped by the Insurance Regulatory and Development Authority of India. The annual charges have been capped at 3% for 10 years and 2.25% for policies with a tenure of more than 10 years.
The best ULIP plansoffer individuals the option to choose from a variety of investment funds and several portfolio management strategies. If the financial aim is clear, opting for the right combination of funds and strategies would not be difficult. The Invest 4G unit-linked plan from Canara HSBC Oriental Bank of Commerce Life Insurance provides flexibility to the investor along with simplicity. With 4 portfolio management options and 7 different types of funds, potential investors can take an informed decision in a transparent manner
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