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The Factors make ULIPs Inflexible & Demanding
There are other factors that make ULIP inflexible and demanding. Care should be taken here. Many of us are attracted by the tax benefit in unit-linked insurance plans. ULIP's toll-free maturity status is an obvious advantage for long-term investors compared to mutual funds that are taxable on redemption. However, there are other factors that make ULIP inflexible and demanding. Care should be taken here
Portability
Once you have invested in the ULIP offered by a life insurance company, you have the option to switch between different funds. However, you cannot leave the insurance company. If you are not happy with the way your money is managed, with fees or with the service, you cannot pay out and switch to another ULIP. There is a castle for a period of five years. If you wish to pay out before this period ends, withdrawal fees apply. Once saved, you will need to apply for another ULIP from another insurer and re-complete the entire process, including medical clearance. By contrast, in a mutual fund that uses funds from a system you are not happy with and re-invests in another system, it is a matter of a few clicks online (exit burden and capital gains tax may apply ).
Costs
While the cost of managing the funds in both products is very modest, there are other fees at ULIP that you should be aware of. First, in the first year, a premium is deducted before investing the amount of the premium. A death fee is charged each year and is deducted from your premiums before you invest. There are now ULIPs that refund the death fee paid at maturity, but this amount would be better served if invested from the outset, profits could multiply over the years. In addition, monthly management fees are deducted from the value of your fund. You may not see all of these fees upfront, but the clear effect is that you invest less than the premium you pay. This also applies when looking at ULIP earnings from the previous year before you decide to buy. The revenue shown does not include death payments, and this may change the difference in the revenue you earn. In addition, death payments will vary for each individual and, in the case of ULIP, higher than what you pay for the same life insurance. There is practically no flexibility after investing in ULIP; no SIP, SWP, etc. You must continue to invest during this policy.
Flexibility
There is practically no flexibility after investing in ULIP; no SIP, SWP, etc. You must continue to invest during this policy. If you get into financial distress and want to stop paying premiums, your policy will cease to exist. You can withdraw the amount in your fund, but this will disadvantage you. In open-ended mutual funds, you may prefer to withhold your monthly contributions in times of crisis rather than withdraw. These are some of the conditions that make ULIP far less desirable than ordinary funds. You must not pursue the 10% tax advantage only; there is no transparent performance and cost transparency also needs to be improved along with the flexibility built into the product.
