A Unit-linked insurance plan offers the dual benefits of market-linked returns and life insurance coverage. When you buy a ULIP, you have the choice of funds, and you can choose to invest in equity, debt, or hybrid funds, depending on your risk appetite. There are many insurers that offer multiple fund choices, and you can choose the appropriate fund. For example, Tata AIA ULIP provides a choice of 11 fund options to choose from.
While choosing a ULIP plan, there are some things that you must take care of. In addition, there are certain expectations that you must not attach with ULIP insurance. Let us understand what expectations will not be fulfilled if you buy a ULIP plan.
Things That You Should Not Expect from ULIP Insurance
Here is the list of things that you must not expect from a ULIP plan:
- Making a withdrawal before 5 years
When you invest in a ULIP plan, your money gets locked in for a period of 5 years. This means that during these 5 years, you will not be able to make any withdrawal from the ULIP insurance plan. If you choose to surrender your ULIP before the lock-in period is over, you will lose all the premiums that you have paid.
Although these 5 years can be good as you will stay invested for a longer time, which means higher returns, so, you must not expect to make a withdrawal before 5 years from your ULIP plan.
- Suitable life cover for the whole family
One of the features of ULIP insurance is that it offers the benefits of life coverage. In most cases, people are not able to gauge the amount of life cover that they need. For example, if you are the only earning member in your family, the life coverage offered by the ULIP might not be able to take care of the needs of your family when you are not there. You must understand that ULIPs are not pure protection plans, and they offer wealth creation benefits as well.
- Premium paid for ULIPs is more than term insurance
Term insurance plans are pure protection insurance plans. This means that they only offer the benefit of life coverage. You do not create wealth or save with these plans. ULIPs, on the other hand, have multiple benefits. One part of the premium is allotted for life coverage, and the other part is invested in market-linked instruments for wealth creation. Due to these dual ULIP benefits, you will have to pay a higher premium for the ULIP insurance plan.
- Always expect to receive high returns
ULIPs offer market-linked returns, which means that if there are fluctuations in the market, the ULIP returns will also fluctuate. Hence, you cannot expect that you will always receive higher returns during the policy tenure.
Although the market is volatile, there has been enough historical data to show that the market rises after every downfall. Therefore, staying invested in the ULIP for a longer time is the key to realising the ULIP benefits of higher returns.
- ULIPs should not be considered tax-saving instruments for 5 years
It is true that benefits regarding tax on ULIPs are plenty, and you can enjoy them when you buy a ULIP. Some people tend to regard ULIP as a tax-saving instrument to save tax for 5 years and then surrender it after the end of the lock-in period.
This approach might not be right, as ULIPs are beneficial if you stay invested in them for a longer period of time. Investing in a ULIP plan should be dependent on the analysis of your financial goals and risk appetite rather than simply considering a mode to save taxes.
ULIPs are great if you are looking to get market-linked returns and insurance coverage in a single policy. However, staying invested in the ULIP plan for the long term is beneficial. Moreover, ULIPs are also excellent for achieving your long-term financial goals, like buying a car, purchasing a house, or launching a start-up.