Premium redirection in ULIPs

What is a ULIP plan?

A ULIP plan is a life insurance policy that combines insurance & market-linked investment. It allows you to invest your premiums in market-linked securities and earn returns. ULIPs have different types of market-linked funds, and you can allocate the premium to the funds of your choice. Thereafter, depending on the market performance, you can accumulate a good corpus over time for your financial goals.

ULIPs also offer insurance protection as they are life insurance plans. In the case of the life insured’s demise during the policy term, a death benefit is paid. On the other hand, if the policy matures and the insured is alive, the fund value is paid as the maturity benefit.

Besides premium redirection, ULIPs offer other flexible features too, like switching, top-ups, partial withdrawals, settlement options, etc. These features add to the benefits of ULIPs and make them a multifaceted financial planning tool.

What is the meaning of premium redirection in ULIP?

It is important to understand the premium redirection meaning in ULIP since it is an important flexible benefit that is available for policyholders. Under premium redirection, you can choose to change the fund to which the future premium would be allocated. While your existing premiums would be allocated to one fund, future premiums would be allocated to another fund that you choose.

For instance, if you are investing in Fund A and want the future premium to be redirected to Fund B, the premium redirection feature would help you do it.

When should you consider redirecting your premium?

There are several instances when you can choose the feature of premium redirection in an insurance plan. Some of these instances are as follows –

• A change in risk appetite

  If, during the policy tenure, your risk appetite changes and you want future premiums to be invested in different funds, you can choose the premium redirection option.

  For instance, say, when you bought the ULIP plan, you had a conservative risk profile and chose debt funds. Later on, your risk appetite grows and you want to invest in equity. In this case, you can opt for premium redirection in insurance and redirect future premiums to equity funds.

  
  

• A change in market dynamics

  The financial market always changes due to changing economic conditions. If the market changes and you want your investment preference to change with market dynamics, you can choose redirection in ULIP.

  For instance, say the equity market was on a rally when you bought a ULIP plan. As such, you invested your premium in equity funds. Later on, you see the equity markets stabilising, and there might be a chance of a correction. So, you might want future premiums to be redirected to debt funds for stability. In this case, too, premium redirection would come to your aid.

  
  

How to redirect your premium in ULIP?

You can redirect your premium any time before paying the next premium. To redirect, you simply have to request the insurance company. The request can be placed online through the insurer’s website or through your online account with the insurance company.

If you place the request without logging into your account, you can visit the website, search for customer services, provide your registered mobile number or email ID and find the plans that you have bought. Select the plan in which you want to choose the premium redirection option. Choose premium redirection on the plan, and your premium will be redirected.

If you log into your account, you can see and choose your ULIP plan and select the premium redirection option to complete the process.

In either case, choose the fund to which you want to redirect future premiums. If you choose more than one fund, specify the allocation percentage for each.

How does premium redirection differ from fund switching?

While premium redirection and switching both mean changing the funds in which you have invested your premiums, they are intrinsically different from one another. Let’s understand how these terms differ and on what parameters –

Key takeaways

• A ULIP plan is an investment-oriented life insurance plan that allows you to invest in market-linked securities to create a corpus for your goals and also provides life insurance protection.
• Premium redirection is a flexible feature in ULIPs which allows you to allocate your future premiums to a fund different from the existing funds.
• You can choose to redirect your premiums before the premium payment is due.
• Premium redirection does not affect the existing fund value. It simply redirects future premiums into another fund.
• Premium redirection in ULIPs is different from switching. While switching means changing the existing investment from one fund to another, premium redirection aims to redirect future premiums to another fund.
• You can consider premium redirection if your risk appetite changes or when the markets fluctuate.
   

Conclusion

Bull and bear markets exist in the financial markets. So, why should you keep your investments the same? You can adjust your ULIPs asset allocation according to your investment view and outlook using the premium-redirection option. Of course, it's important to keep in mind that successfully timing the markets necessitates experience. Before making a transition, think about your risk appetite, age, aspirations, and dependents. So, before you reroute your funds, talk to your financial advisor or fund manager.