Understand the Market Risks Before Buying a ULIP Plan in 2022

ULIP plans are insurance plans that also have an investment potential due to their market dependent securities. But like any other market dependent investment, ULIP also has market risks associated with it. And knowing these risks will help you reduce the risks affecting your ULIP plan, especially if it was your best investment plan for 5 years. Please continue reading to know more about the market risks in ULIP plans and their effects on the plan still valid in 2022.

Market Risks in ULIP Plans

Market risks in ULIP are the direct external causes that affect a ULIP plan’s returns. These are mainly due to external effects such as inflation, recession, economy, and other issues facing the country’s economy. Market risks are of two major types: market volatility and investment return risks.

Market Volatility Risk

Market volatility risk is the risk that is solely dependent on the market conditions. Such risks affect every market securities investment similarly. So, if a market becomes volatile and starts tanking, its effects are seen in equity, mutual funds, bonds, and even in ULIP plans.

One cannot predict such risks as they have several factors which cause them. A thing worth noticing is market volatility is also the reason behind the high return rates of market securities. Because the market fluctuates, the value of the products also fluctuates, so when someone purchases a product when the market is down, they can earn a profit by selling it when the market is up.

But even with the presence of volatility, the market somehow always tends to grow and move upwards in value. And ULIP plans also take advantage of this upwards trend to provide high-interest rates.

Investment Return Risk

The major cause behind investment return risks is the performance of the product. So, this is an internal risk. But sometimes, market fluctuations can also cause these risks. These risks usually affect the returns from an investment plan, thus providing the investor with losses in interest or capital.

Effects of Market Risks on ULIP Plans

Market risks affect the working and returns from any investment plan. When it comes to a ULIP investment, these market risks can have three different and specific effects. Given below are those three major effects.

Reduced Interest

Market risks can cause the interest rate to become low or sometimes nil. These are very hard consequences because people often invest in ULIP for future monetary requirements. And when they don’t get the expected returns, there can be backlashes in the personal budget and finances.

But most ULIP plans nowadays provide a lower limit on the interest rate. So even with the effects of market risks, the returns will not go below a certain rate. And the investor can get certainty in their expected returns.

Losses in Capital

Sometimes the risks also cause the loss of capital. Although such cases are rare today due to the lower interest capping, they can occur. And this will affect getting a maturity return lower than the invested capital.

Insolvency Of ULIP

Some hard hits from the market risks can also cause the ULIP to become insolvent. So, the provider will disperse the ULIP, and every investor will have to surrender their policies. But these are rarely seen, that too in insurers without much credibility. That is why investing in ULIP plans from a reputed insurer is necessary.

Knowing these market risks and their effects in a ULIP plan is necessary. They will help you make correct decisions and protect you from losses. To further reduce the losses, you can always choose your ULIP plan from a good insurer.

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