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Confused between Sum Assured and Fund Value in ULIPs? Know them at your fingertips

October 22, 2022

Table of Content

1. What is sum assured?

2. What is fund value?

3. Different cases of pay-out

Sum assured – amount paid to beneficiary in case of policyholder’s demise
Fund value – Fund value on a particular day is net asset value on that particular day multiplied by the number of units held

Unlike traditional policies, ULIPs offer the dual benefit of life insurance as well as investment. This financial tool utilises a certain percentage of the premium paid to provide life insurance cover and the remaining amount is utilised to create the investment corpus.

ULIPs have a lock-in period of five years. ULIPs offer pay-outs in case of surrender, maturity, or the untimely demise of the insured. Let us look at the two terms associated with ULIPs which will help you understand its benefits better.

What is sum assured?

The insurer promises to pay a certain amount to the family of the policyholder in case of his demise during the policy term. This amount is known as the sum assured. The sum assured associated with a ULIP plan gives an assurance that at least this sum of money will be paid to the family of the insured in case of his demise during the policy term.

What is fund value?

Under ULIP, policyholder can choose from a set of funds to invest in, as per his risk appetite and market conditions. The total monetary worth of the units owned by the policyholder is termed as fund value. You can calculate the fund value on a particular day by multiplying the net asset value (NAV) of each unit on that particular day by the number of units held. The fund value keeps changing basis the NAV.

The NAV is the per unit price of a fund, calculated by deducting the associated liabilities from the fund’s assets.

Different cases of pay-out

There are three conditions under which pay-out can be received from a ULIP plan. Below it is explained how each option is executed:

Upon Policyholder’s demise

In case of demise of the policyholder during the policy term, the sum assured or fund value, whichever is higher, is paid to his family. So, if the fund has been under performing, and the fund value is lower than sum-assured, sum assured will be paid.
Upon policy Surrender

In case the policy owner surrenders the policy during the lock-in period, the insurer deducts the applicable charges from the fund value and pays the surrender value after completion of the lock-in period. ULIPs have a lock-in period of 5 years.

If the policyholder surrenders the policy after completion of the lock-in period, the insurer pays the fund value. The fund value is calculated by multiplying NAV (on the particular date) by the number of units held.
Upon maturity

When the policy period gets over, fund value is paid to the policyholder.

For more information about ULIPs contact an advisor by visiting the HDFC Life website.

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ARN: ED/08/22/28492

Francis Rodrigues

Written By:

Vishal Subharwal

Reviewed By:

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