Life Insurance, we all need it. Even if you have enough assets to leave behind for your loved ones, life insurance provides the extra financial protection required to secure your financial future in case something happens to you. However, most of us don’t know how ULIPs work and what makes them more suitable than traditional life insurance policies.
This article is here to help you understand the nitty-gritty of the best ULIP plans by busting several myths related to these products so that you can decide whether they are right for you or not.
Myth #1 – They are expensive
Contrary to popular belief, they are not. You can buy a good insurance policy for anywhere between 10% and 20% of your annual income.
If you don’t want to spend all of your savings on a big-ticket item, you may want to consider buying an insurance policy instead.
Myth #2 – There are very few products available
True, very few insurers offer the best ULIP plans at present. But most insurance companies are expected to launch their products shortly. So you’ll have more options in the future.
Also, there are a lot of mutual funds that offer Ulips today, so you can always opt for these if insurance companies take a little longer to come up with new plans (see Myth #4).
Myth #3 – The returns will be less
On a long-term basis, returns from insurance policies tend to beat inflation by a good margin. This is especially true with ultra-long-term products such as ULIPs (although you have to make several premium payments to benefit from that).
In fact, in certain cases, you can even earn better returns than fixed deposits and bank savings accounts.
Myth #4 – The tax benefits aren’t significant
The biggest advantage of a ULIP is its tax benefit. All investments are taxed under Section 80C except for insurance.
So, it’s easy to see how ULIP benefits can become more beneficial than traditional instruments, especially when it comes to saving taxes. For example, when you invest Rs 1 lakh in mutual funds or gold through SIPs, you get tax deductions only up to Rs 1 lakh each financial year.
Myth #5 – Pension & EPF are safer
Both are regulated by a government agency, so people often consider them safe. But, your financial advisor should tell you that insurance products, like ULIP benefits and endowment policies, are just as safe.
If you have already put money in an insurance plan instead of a pension fund or EPF (Employee Provident Fund), don’t worry! You aren’t taking unnecessary risks with your hard-earned money! Plus, you get tax benefits on it!
Myth #6 – Interest rates are higher elsewhere
Not true. While it is possible to get higher returns in insurance policies of other insurers, you must consider that you are exposed to higher risks by investing in them. For example, if a company fails, how will it pay its claims?
If an insurer goes under, will it be able to honor all its promises and commitments? You never know when an emergency strikes! It’s better to invest with an established player who has been around for over 50 years.
Myth #7 – Bank FDs are risk-free
Bank FDs aren’t risk-free. They’re insured by public sector insurance companies, and these same insurance companies have been going through financial difficulties themselves.
The government is taking steps to resolve these issues but for now, there’s a chance that your FD could lose money. If you need your money quickly, avoid bank FDs—if you can’t avoid them, keep only as much as you can afford to lose in an FD in your bank account.
Myth #8 – Can only be bought by high net-worth individuals
All insurance policies in India are mandatorily for a minimum sum insured of Rs 2 lakh. So there is no restriction on who can or cannot buy ULIP benefits.
The biggest mistake that investors make is not understanding how it works. Many banks sell financial products they don’t understand themselves – so if you want to put your money in a ULIP and still feel good at night, at least know what you’re buying!
Canara HSBC Life Insurance understands that when it comes to protecting your family, there’s no such thing as too much insurance. That’s why we offer a wide range of life insurance policies to help protect your loved ones in the event of your passing. We know that losing a loved one is difficult enough without having to worry about finances or other logistics—that’s why our policies are designed to be simple so you can focus on grieving in peace. Let us help you protect what matters most.
Conclusion
ULIPs (Unit Linked Insurance Plans) is one of the most popular investment options in India, with over Rs 50,000 crores invested in them. However, many investors are not clear about what they are or have heard incorrect information about them that has left them wary of investing in this product. In this article, we clarify any myths you might have about ULIPs and explain how they could benefit you as an investor by providing you with retirement and insurance products without the need to buy two separate policies.
