Unit-linked insurance plans (or ULIPs) allow for policyholders to avail of two vital services. By paying a premium for the plan, policyholders are provided with both insurance coverage as well as an investment plan. Companies that offer ULIPs accumulate all premiums paid and collectively invest the money in a wide range of securities based on policyholder preferences. Once they invest this money, the accumulated investment is split into units each of which has a certain face value. Policyholders are each awarded with units based on the amount they invested in their ULIP plan. The value of each unit is called the net asset value (or NAV). Changes in the values of underlying assets are reflected in the NAV.
This article is aimed at providing insight on the top-up facility available under unit-linked insurance plans.
What does it mean to top up your ULIP?
ULIP plans are designed for those interested in long-haul commitments and require policyholders to have an in-depth understanding of all that they entail. Top-up facilities allow policyholders with a greater level of flexibility and make it possible for financial plans to be followed with a higher degree of efficiency.
In order to understand how top-up facilities work, comparisons may be drawn with prepaid mobile number schemes. These services allow for mobile phone owners to avail of a greater amount of talk time but do not necessarily add to the time period for which the plan may be valid. ULIP top-up facilities function in the same way. Policyholders are allowed to add an additional amount to their investments which is added on to their prevailing premium. As a result, their fund value witnesses an increase. This increase is not applicable to their sum assured. For those confused between the two terms –
- Fund value refers to the net asset value for a given day multiplied by the number of units owned by the policyholder.
- Conversely, sum assured can be defined as the money meant to be paid to the policyholder’s beneficiary in the event that they die during the policy term, by the ULIP plan provider.
Readers must be aware of the fact that there is a limit basis which policyholders are entitled to pay top-up premium.