A unit-linked insurance plan is an insurance policy with investment potential (ULIP). In this type of linked plan, a portion of the premium is invested in various funds in accordance with the choices of the policyholder. The remaining portion of your payment, including a portion going towards your life insurance coverage, is invested in stocks, bonds, and other market-linked assets.
Let’s get into the details to find out what the sum promised means:
What does ULIP’s Sum Assured mean?
The death benefit given to the policy’s designated beneficiary in the tragic event of the insured person’s passing is referred to as the sum assured in insurance. Please be aware that the premium payment and the amount of the guarantee are directly related.
Plan for Term Insurance
A term insurance plan’s sum assured is a predetermined amount that is specified in the policy contract. The insurance company is required to pay the nominee the sum assured in the case of a death during the policy term.
For instance, if you select a term insurance plan with a sum assured cover of Rs. 1 crore, your loved ones will receive the full amount in the tragic event that you pass away within the policy period. The complete premium amount is needed to cover the insured’s life insurance because this plan has no maturity benefit.
The ULIP calculator is a simple and easy to use tool that you can use to predict the return you might get at maturity by entering a few details.
For ULIP policies, the sum insured includes the fund value at the time of claim payment. Depending on the conditions of the policy, the insurance company may pay your nominee the amount guaranteed, the fund value, or the higher of the two sums.
A death or maturity benefit is also offered by ULIPs; the promised amount is paid after maturity. In addition, policyholders receive a number of additional benefits, such as incentives that are eventually added to the sum assured.
How does the fund value in a ULIP differ from the sum assured?
For many people, financial jargon can be somewhat confusing. How the “Fund Value” and the “Sum Assured” differ from one another is one of the most perplexing aspects. Continue scrolling to make sure your ideas are crystal clear!
The fund value represents the overall value of your holdings as of a particular date. It is calculated using the Net Asset Value (NAV) of your assets, which is obtained by dividing the NAV by the total number of units held. The “sum guaranteed” is the amount of money provided to your loved ones as a death benefit.
Due to the fact that ULIPs serve both investment and insurance purposes, there are two distinct payment components. Whether the policyholder lives out the policy term or surrenders their insurance, the “Fund Value” is paid out. The “Sum Assured” doesn’t take effect until the policyholder dies within the policy period, though.
How Is Payment Made in a ULIP Case?
The nature of the claim will determine the ULIP payment method.
- In the event of a death claim, the policyholder’s nominee will receive the higher of the sum assured or fund value.
- In the event of a policy surrender, ULIP plans have a 5-year ULIP lock-in period following which a policy may be cancelled. When the day of surrender comes, the insurance provider will waive the surrender fees and offer you the fund value. Your units’ NAV will be used to determine this.
- You are given the whole fund value when insurance reaches its maturity date. This comprises your initial investment, investment returns, and any accumulated bonuses over time.
Things to Consider Before Buying a ULIP
Prior to making an investment, great attention to detail is required. A few things to consider before investing in ULIP plans are listed below:
- A guaranteed sum that will be given to the policyholder’s family is known as the sum assured.
- The insurance coverage will have a five-year minimum ULIP lock-in period The grace period is 15 days for monthly premiums and 30 days for all other circumstances.
- After five years, if the insurance is cancelled, the policyholder has two years to reinstate the coverage.
- After five years, the policy can only be partially withdrawn.
- No withdrawal is permitted from child insurance until the child reaches the age of 18. ULIPs provide a number of advantages.
- The investment selection should be made from a comprehensive portfolio viewpoint to ensure that the policyholder may achieve all of their financial and security-related goals.