5 Common Mistakes People Make While Buying ULIPs

Increasing wealth to manage uncertainties and live peacefully should be a priority in any individual’s life. However, there are different ways to achieve the same. Investing in ULIP plans in India is certainly one of the most prominent choices. ULIP policy is a comprehensive life insurance plan that provides dual benefits, life cover and market-linked returns. Investing in a ULIP plan should be planned well to reap maximum benefits. Here are a few mistakes that people make while buying ULIP funds.

5 Common Mistakes People Make While Buying ULIPs

Here are the five common mistakes people make while buying ULIPs:

  • Not choosing the right plan – ULIP plans in India vary based on the ULIP funds. You need to choose the right plan that provides a ULIP fund option you can afford for the long term that can reap the required benefits. For example, the Tata AIA ULIP plan provides 11 different fund options that range between the low, medium and high risk. You need to assess your income and financial commitments and the affordable premium rate that can suffice for your financial requirements in the long term while purchasing the ULIP plan.
  • Not realising the features of the ULIP policy – People buy unit-linked insurance plans without realising its flexible features. ULIP plans allow you to choose the fund option based on your risk appetite. For example, there are the equity, hybrid and debt fund options. You can also switch between the fund options based on the changing market conditions, such as switching from a high-risk equity fund to a debt fund to protect your investment value.
  • Not being aware of the ULIP plan costs – The benefits of a ULIP policy are wide-ranging. However, it involves different inherent costs. For example, there is the premium allocation cost, fund management cost, mortality charges, etc. Considering the advantages of investing in the ULIP plan, affording these costs is worth the investment. However, it is important to be aware of the costs to plan for the finances and invest in it regularly.
  • Considering the ULIP plan to be a five-year policy – The unit-linked policy has a five-year lock-in period. It does not mean you can invest in the ULIP policy for 5 years. It refers to the applicability of partial withdrawal available after the five-year lock-in period. The tax benefits also apply to the ULIP policy only if you pay the premium regularly during the five-year lock-in period.
  • Considering ULIP plans provide guaranteed returns – ULIP life insurance provides market-linked returns at maturity. As the returns are market-linked, you cannot expect guaranteed returns at maturity. It depends on the fund option you invest in and the timely actions you take to switch between them based on the prevailing market conditions. It would help if you made yourself aware of the global economic conditions and the fluctuation in the market indices that affect the fund value and take the necessary steps timely. You can take the help of fund managers to make the required changes if you have a difficult and busy work schedule.


ULIP life insurance provides dual benefits, life cover and market-linked returns. In addition, it offers flexible features such as choosing the fund option to invest in based on the risk appetite and switching between them whenever required. However, people make mistakes by choosing the wrong plan and not being aware of the flexible options. And, very few people consider the costs involved in availing of the ULIP benefits. Also, some people believe that the ULIP is a five-year investment policy that provides guaranteed returns. You must realise the purpose of the ULIP policy, understand its features and choose the best based on your financial requirements and affordability.

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