What is the sum assured in ULIP?
The meaning of sum assured in ULIP is the insurance coverage offered by the plan. The ULIP sum assured is usually paid as the death benefit if it is higher than the fund value. However, there are some ULIPs that pay the sum assured and the fund value as death benefit, depending on the plan type. Thus, the sum assured in ULIP can be expressed as the minimum benefit that is payable if the life insured passes away during the policy term.
For instance, say Mukesh happens to buy a ULIP plan with a coverage of Rs 10 lakh and a 20-year policy term. The premium is ₹1 lakh. Now, consider the following scenarios:
- Mukesh passed away in the 5th year of the policy. In the 5th year, the fund value is lower than ₹10 lakhs. In this case, the ULIP will pay the ULIP sum assured, which is ₹10 lakhs, as the death benefit.
- Mukesh passed away in the 15th year of the policy. In the 15th year, the fund value is higher than the sum assured. In this case, the fund value would be paid by the plan.
This is how the sum assured under ULIPs works.
How does ULIP work?
The unit-linked insurance plan (ULIP) combines the best of both worlds: life insurance and investment. A portion of your premium goes toward your life insurance coverage, while the remainder is invested in equities, bonds, and other market-linked instruments. Depending on the premium paid, the sum assured is determined, which signifies the insurance coverage under the policy.
The premiums, net of applicable charges, are invested in the chosen funds. The funds perform depending on market movements and your fund value changes. In the case of death during the policy term, the higher of the sum assured or the fund value is paid if you choose a Type I ULIP. However, if you choose Type II ULIPs, you get both the fund value and the sum assured as the death benefit.
Alternatively, if the life insured survives the policy term, the fund value is paid.
ULIPs also offer the flexibility of switching between funds, making partial withdrawals during the policy term after 5-year lock-in period, redirecting future premiums, paying additional premiums through top-ups, etc.
But how can you figure out how much money your family will receive if you die during the policy term or when the policy matures? So, let's try to make things as simple as possible for you!
How is the sum assured different from the fund value in ULIP?
The ULIP sum assured is completely different from its fund value. The sum assured signifies the minimum death benefit payable under the plan. It is applicable only if the life insured passes away during the policy term.
The fund value, however, has no such restriction. It can be paid on death during the term, if it is higher than the ULIP sum assured, or on maturity.
Moreover, the sum assured in ULIPs is usually calculated as a multiple of the premium paid. The fund value, however, is calculated based on market performance. It is calculated by multiplying the number of units by the applicable NAV (Net Asset Value) as on the date of death or maturity.
How are returns paid out in ULIPs?
In ULIPs, the returns depend on how the chosen fund has performed, which, in turn, depends on market movements. Here’s how it is paid at different instances –
In case of a death claim
If the life insured passes away during the policy term the death benefit depends on the ULIP type. Type I ULIPs pay the higher of the sum assured or the fund value. Type II ULIPs pay both the sum assured and the fund value. In either case, the payout includes the returns earned on the invested premium.
On policy surrender
When it comes to surrender, there’s a lock-in period to consider. ULIPs have a lock-in period of 5 years. If you surrender during the lock-in period, the fund value (net of applicable charges) would be allocated to the discontinued policy fund, where it will stay for the remaining lock-in period. For instance, if you surrender in the 3rd policy year, the fund value would stay in the discontinued policy fund for the next 2 years until the lock-in period of 5 years is over. During this period, the fund value would earn returns at a nominal rate. After the lock-in completes, the payout is made.
If, however, you surrender anytime after the lock-in period, you would get the fund value, which would include the returns earned, subject to minimal charges and applicable tax rules.
At policy maturity
On maturity, the returns are paid out through the fund value, which also represents the maturity benefit of the policy.
Check out key factors before investing in a ULIP
Before you buy a ULIP plan, here are some key factors to consider –
The charges
Know the charges of the plan since they reduce the premium allocation to the chosen fund. The lower the charge structure, the better the policy would be.
The additional benefits
Some ULIPs might offer additional benefits or returns in the form of wealth boosters, loyalty additions, etc. Check for these benefits as they add more value to the policy.
Inbuilt or optional riders
ULIP plans offer optional riders, which you can choose for enhanced protection. In some plans, some riders can come as an inbuilt benefit too.
Check for the available riders and customise the coverage per your needs.
Type of ULIP
There are different types of ULIPs, like child ULIPs, whole life ULIPs, endowment ULIPs, annuity ULIPs, etc. Assess these plans and choose one that matches your needs.
The sum assured
Lastly, check the ULIP sum assured offered. While the sum assured is expressed as a multiple, ULIPs might have a minimum and maximum multiple. This can help you understand the coverage that the plan is offering.
Key takeaways
- ULIPs are insurance-cum-investment plans which have a sum assured representing the life insurance coverage of the policy.
- The sum assured is expressed as a multiple of the premium paid.
- The sum assured is paid in the case of death during the policy term if the fund value is lower than the sum assured.
- You can get ULIP returns on death, surrender, or maturity.
- When buying a ULIP, check the charges, the sum assured offered, added benefits, riders, and types to find the right plan.
Conclusion
You can make an informed decision before purchasing a ULIP now that you know the various payment matrices. Use the ULIP calculator to figure out how much your sum insured will be. Additionally, you may invest in ULIP Plans to earn market-linked returns while protecting the financial future of your loved ones.
Understand what the sum assured is in a ULIP and when it is payable. Also, read the terms and conditions of the policy before you buy it so that you can make an informed decision.
FAQs
How is the Sum Assured determined in a ULIP policy?
The sum assured in a ULIP depends on the premium paid. It is expressed as a multiple of the premium amount. For instance, if you pay a premium of ₹20,000 and the sum assured is 10X the premium, the sum assured would be ₹2 lakhs.
Is Sum Assured guaranteed in ULIPs?
The sum assured is the minimum benefit paid in the case of the death of the life insured during the policy term. Under Type I ULIPs, you get the higher of the sum assured or the fund value, while under Type II ULIPs, you get both the sum assured and the fund value.
How does Sum Assured differ from Fund Value in a ULIP?
The sum assured represents the life insurance coverage of a ULIP, while the fund value represents the market-linked performance of the invested premiums.
Can I change the Sum Assured amount during the policy term?
Usually, the sum assured is not allowed to change during the policy term. However, you might contact your insurance company to find out if the change is allowed or not.
What happens if the Fund Value is higher than the Sum Assured?
If the fund value is higher and you have opted for Type I ULIPs, the fund value would be paid in the case of the death of the life insured during the policy term.
Is the Sum Assured taxable in ULIPs?
The sum assured, payable as a death benefit, would be tax-free1.
How does Sum Assured impact the premium in a ULIP?
The sum assured does not impact the premium in a ULIP. It is expressed as a multiple of the premium paid.
What are the minimum and maximum Sum Assured allowed in ULIPs?
The minimum and maximum sum assured usually depend on the minimum and maximum multiples allowed under the ULIP. You can check the policy brochure to find the minimum and maximum limits.
Does the Sum Assured affect the death benefit in a ULIP plan?
Yes, the sum assured plays a key role in determining the death benefit in a ULIP plan. The actual payout depends on the type of ULIP:
- In Type I ULIPs, the death benefit is the higher of the sum assured or the fund value.
- In Type II ULIPs, the death benefit is sum assured plus fund value.
Therefore, the sum assured acts as a minimum guaranteed component of the death benefit, but the final payout may also include the fund value depending on the ULIP structure.
An ISO 9001:2015 
