When people start working, they establish a list of goals that they want to accomplish while they are still earning. These goals are more or less similar for almost everyone, with the exception of some specific goals. If you approach the idea of accomplishing these goals on the basis of your income and your savings, you will need to re-evaluate the financing factor for them.
It would be prudent of you to consider investing your wealth so that it can grow gradually and help you achieve your goals. A popular financial plan that can be used for investment is a ULIP. However, many people are sceptical due to the unproved myths related to them. What are these myths? Read on to know more.
What is a ULIP?
ULIP is a type of life insurance policy. When you invest in this policy, you get to enjoy the dual benefits of insurance and investment under a single policy. A part of the premium is used for the investment component. Your money is invested in funds such as equity and debt funds offered under the ULIP plans. As each fund carries a different risk factor and offers different returns, your investments are also made on the basis of your risk appetite and requirements.
The other part of your premium is utilised towards the insurance component. Your family members are provided with a life insurance cover. In the event of your sudden demise during the term of the plan, your family will receive a death benefit. They will also receive maturity benefits from the plan once it matures.
Myths related to ULIPs
There is a lot of misconception and misinformation related to ULIPs that deters people from considering. Listed below are such myths about ULIPs and facts related to them:
Myth #1: Premium options are limited
Fact: ULIPs do provide you with different premium payment options that you can consider. You can make monthly, half-yearly and yearly premium payments. There is also the option of making a single, one-time lump sum premium payment. The option you select is dependent on your financial ability to make the payment. If there are vital expenses apart from premium, you should go for regular premium payment. If your income is substantial enough to cover a one-time lump sum payment, you should opt for that.
Myth #2: It gets taxed heavily
Fact: It is the complete opposite when it comes to ULIP, meaning, there are many tax benefits you can enjoy. In the old tax regime, premium payments of up to Rs. 1.5 Lakhs were tax-deductible under Section 80C of the Income Tax Act. This has changed to Rs.2.5 lakhs in the new tax regime. Any partial withdrawals that you make from the policy are also eligible for tax-deductions under Section 10(10D) of the Income Tax Act. Similarly, death benefit and maturity benefits from the policy are also tax-deductible under Section 10(10D).
Myth #3: Surrendering the plan is not possible
Fact: When you invest in ULIPs, it is advised to stay invested in them for the entire tenure. However, if for some reason you want to surrender the policy, you can do easily. ULIPs have a lock-in period of 5 years. If you surrender your policy during this period, you will not get access to your funds until the lock-in period ends. If you wish to surrender it after the lock-in period ends, the funds along with the returns will be paid back to you immediately.
Myth #4: Charges make it expensive
Fact: Under the IRDAI mandate, the ULIP’s charges are lower as compared to other financial products. The charges are only 1.35% of the fund value of your ULIP. These charges include fund management charge, administration charge, underwriting charge, etc.
ULIPs have greater benefits that serve you in the long run. Make sure you get in touch with your financial advisor to get your doubts cleared. If you wish to invest in a ULIP, you can use the ULIP return calculator to get an idea about your returns based on your investment.