Why you shouldn’t exit your ULIP


When you are looking for options that would help you with wealth creation, your main focus will be on investment. There are many instruments of investment that allow you to grow your wealth substantially over a period of time. One such instrument is a ULIP. It allows you to enjoy the dual benefits of investment and insurance in the same policy.

It is generally advised to stay invested in a ULIP plan for a longer duration. However, many people tend to exit their plans early for different reasons. This can have a lot of disadvantages. Read more to understand why you should stay invested in ULIPs for the long term.

What is a ULIP?

A ULIP is a type of life insurance policy. In a ULIP plan, you get to enjoy the benefits of both investment and insurance without the need for a separate policy. The money used for both investment and insurance comes from the premium you pay for the policy. You get to invest in either equity or debt funds. Both funds have different risk factors and offer different returns. So, the investment shall be made as per your risk appetite and requirements. The life cover provides financial security to your family in the event of your untimely demise. 

Why keep your ULIP for the long term?

There are many reasons that might make you reconsider your investment in your ULIP. Even though you might think it would benefit you to withdraw immediately from the plan, listed below are reasons why you should not exit the plan immediately:

1. Returns get compounded

The main premise of ULIPs is to give profits to the investor in the long run. ULIPs are for individuals who want to accumulate wealth at their own pace. This is especially beneficial when you want your ULIP plans returns to be substantial and consistent. ULIPs offer you the benefits of switching your investments at different stages of life. As per requirements, you can allocate money from one fund to another. This helps in maintaining your returns. Above all, the returns you gain from a long-term plan make for a great pay-out amount when compared to the returns from a short-term plan.

2. Charges are negligible

Like any other financial instrument, ULIPs also have charges of their own. These charges include administration charges, management of fund charges, and withdrawal charges. Most of these charges are deducted in the initial period of the plan, more specifically during the lock-in period of the plan. With a lock-in period of 5 years, many investors might think that their returns are low due to the charges being deducted from the fund itself. 

However, once the lock-in period is over, these charges are almost insignificant and would] not affect your funds at all. With the returns being higher post the lock-in period, it would be a loss-making decision to withdraw from your plan immediately after the period ends. This is why you should wait till the lock-in period ends to see how the returns improve your portfolio.

3. Transparency makes it better

One of the main benefits that most ULIP investors are not aware of is transparency. You can easily check how your investments are performing on a daily basis. When you check the net asset value (NAV) of your portfolio, you get a clear idea of how much your returns are based on your investments. Rarely is this benefit provided in other financial instruments. By taking advantage of this, you know exactly where and how much of your money is being invested. This can also help you in making any decision about your investments.

To be able to accomplish your life goals and get the financial independence you truly deserve, it is prudent to stay invested in ULIPs for a longer duration. You can take advantage of the ULIP return calculator from your insurer’s website to see how much your returns would be based on your investments.