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How Top-Up Facility in ULIP Works

How top-up facility in ULIP works

How Top-Up Facility in ULIP Works


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July 02, 2021

By : Bajaj Allianz Life

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.

 

How to initiate the top-up facility in ULIP –

 

In order to be able to initiate the top-up facility, it is vital that regular premiums be paid within the prescribed time frame outlined in the policy term. Provided the top-up premium is not in excess of 25% of the ordinary premium required to be paid, policyholders aren’t ordinarily required to purchase insurance coverage with the top-up premium. Charges applicable to top-up premiums are known to be minimal and are subject to terms and conditions mentioned in the policy.

ULIP calculators allow users to discern the estimated amount they need to successfully carry out financial goals by providing details pertaining to investment funds and expected returns.

 

Benefits of the top-up facility in ULIP

 

Top-up premiums provide those who avail of the same with a number of benefits some of which have been mentioned below -

  • By investing in a policy that requires a minimum premium, policyholders can avail of the top-up facility to direct additional investments.
  • Policyholders are required to pay minimal charges since no inflated charges are levied on the top-up premium.
  • In the event that a policyholder’s pre-existing premium falls within the equity bracket as per the terms of the policy, they are eligible to invest in a top-up premium in the debt bracket.

 

Conclusion

 

Investing in a ULIP benefits policyholders in a number of ways. These plans are catered towards providing policyholders with dedicated, strategic investment plans aimed at fulfilling their financial goals. Flexibility and transparency are available at each step of the way.

Top-up services available under ULIP plans allow for policyholders to increase their fund value. During these uncertain times, ULIPs can help in maximizing their returns stretched over a period of time.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.