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12 ULIP Terms You Should Be Familiar With

ULIP investment terminology

12 ULIP Terms You Should Be Familiar With


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February 24, 2020

By : Bajaj Allianz Life

A ULIP plan is a combination of investment and insurance. Flexibility and financial security are the key benefits offered by ULIP policies. Besides, ULIP investments may garner substantial returns to help policyholders achieve their life goals like travelling, pursuing hobbies, retirement, etc. The dual benefits of investment and insurance can help you get your family goals done.

Under a ULIP Policy, there are certain terms one must know before making an investment. Studying the ULIP terminologies could help you in understanding the plan thoroughly. Therefore, here are the top 14 essential ULIP terminologies that you must know:

1. Sum Assured

The nominees of the policyholder are liable to receive a fixed amount on the death of the policyholder. This amount is called the sum assured. A ULIP investment guarantees the sum assured to the beneficiaries. As a ULIP buyer, you must ensure that the sum assured you opt for is sufficient for your dependents to sustain upon, in case of your demise.

2. Fund value

Under a ULIP Policy, a substantial part of the premium paid by you goes towards investments in funds. The investments also grow over time. The fund value indicates the total value of the invested funds as on date. To calculate the fund value, multiply the number of units you own by the Net Asset Value (NAV) or the monetary value of each unit.

3. Net Asset Value (NAV)

In a ULIP Policy, Net Asset Value (NAV) means the value of a single unit of your investment. An investment fund, which is a pool of investments from multiple investors (minus any liabilities), is divided by the number of outstanding units. The NAV of a fund is therefore the price of a single unit.

4. Premium

As a policyholder, you must pay the premium for the survival of the policy. You can select the tenure of the premium payment based on your preference. As an investor, you can pay premiums monthly, quarterly, half-yearly, or annually as per the mode selected by you while investing. Failure to pay the premiums on time may lead to the lapse of the ULIP Policy. Hence it is important to pay your premiums on time so that you can maximise benefits from the investment made to achieve your Life Goals.

5. Death benefit

The death benefit is the total amount, which is payable to the beneficiary or nominee by the insurance company on the policyholder’s unfortunate demise. It can either be the sum assured or the fund value, whichever is higher. What your beneficiary gets would depend on the plan you opt for. The nominees can obtain the death benefit either as a lump-sum or in monthly instalments.

6. Maturity benefit

Maturity benefit is offered to the policyholder when the policy tenure gets over. You can avail tax free maturity amount as per Section 10 (10D) of the Income Tax Act 1961, subject to the provisions stated therein.

7. Riders

Riders or add-ons are the additional benefits provided by the insurance companies. These riders enhance the value of the coverage. Typically, the most common riders offered are critical illness rider, waiver of premium rider, accidental cover, and so forth. However, these riders vary depending upon the company.

8. Lock-in period

A lock-in period is a stipulated time till which you cannot withdraw your investments. In case of ULIP, if a policyholder surrenders the policy before the completion of the lock-in period, the fund value is shifted to a discontinuation fund. The policyholder can withdraw the amount once the lock-in period is over. A ULIP Policy has a lock-in period of 5 years.

9. Switching option

A ULIP plan allows an individual to invest in multiple fund options at the same time. However, the policyholders also have the freedom to switch between these ULIP funds. The number of switches allowed typically depends upon the type of plan, which you have chosen.

10. ULIP returns

The returns of a ULIP policy depends upon the performance of the market as well as your fund selection. One needs to stay invested for long term to be able to maximise their returns.

11. Top-ups

As the name suggests, the top-up premium is an additional amount paid in addition to the base premium. If a ULIP policyholder wants to increase the amount of his/her investment in funds, he/she can do so through top-ups.

12. ULIP charges

The insurance companies levy certain charges on a ULIP Policy. Under a ULIP Plan, a few of the levied charges are as follows:

a. Policy administration charge

b. Fund management charge

c. Mortality charge

d. Premium allocation charge

It is important to understand the financial product you are going to invest your hard-earned money into. Before opting for a policy, research and compare multiple plans. Make use of a ULIP calculator to understand the value of achieving your Life Goals through a ULIP policy. An investor may also opt for or seek professional help before zeroing on the final product.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

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.