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Meaning of Sum Assured in a ULIP

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Meaning of Sum Assured in a ULIP
November 07, 2022

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

A ULIP is a Unit Linked Insurance Plan. This is an investment plan that is combined with a life insurance plan, and both products are offered under one policy. You pay a premium towards the plan you sign up for, and this keeps the plan active. The premium is paid so that you get life coverage in the plan, and part of it is allocated to investment in bonds, equities, etc. The aspects of a ULIP like the sum assured, value of the fund, bonuses accrued, etc. should be understood comprehensively before investing. Often, people get confused about aspects of a ULIP like the “sum assured”, since you get dual benefits from a plan. After you have a good read, you may understand more.

What is sum assured in a ULIP?

In any kind of insurance plan, especially where life insurance is concerned, the sum assured is the death benefit payout received by the nominee in the event of the unfortunate demise of the policyholder. At this point, it is important to note that the sum assured and the premium paid have a direct relationship.

The higher the amount of the premium that is paid, the greater the sum assured will be. However, people remain confused as a ULIP contains an investment component as well as life insurance cover. You can understand the concept of the “sum assured in a ULIP” better if you compare a ULIP with term insurance in which there is no investment component.

In a simple term life insurance plan, with a sum assured equal to Rs. 1 crore, your beneficiaries will receive this amount as a death benefit in the event of your unforeseen demise, if it occurs within the tenure of the policy. The premiums that policyholders pay go towards a death benefit in the case of the death of the policyholder within the policy term. There is no maturity benefit here. The sum assured value is the death benefit that the beneficiaries get.

With a ULIP, the value of the sum assured includes the amount of the fund invested in when claims are settled. Depending on your insurance provider and the ULIP opted for, the nominee may get the sum assured (the premiums that go toward life insurance cover) or the value of the fund (whichever turns out to be higher). Additionally, there is also a maturity benefit in a ULIP, which may be a bonus that a policyholder avails of when the plan reaches maturity. Therefore, the sum assured in a ULIP works out better than in any basic life insurance plan.

How is the Sum-Assured different from the fund value in a ULIP?

In case you are still facing some perplexity with financial terminology, you should be clear about the sum assured and the fund value. Just consider that a ULIP has two parts: the insurance part and the investment part. The entire value of your investment at any given point is the fund value (the fund you have invested part of your premium in). The sum assured is a predetermined sum of money that beneficiaries will receive in the form of a death benefit. The sum assured is paid to beneficiaries should policyholders have an unfortunate demise during the plan term. The fund value is paid out to the policyholder should the policyholder survive the policy tenure, or opt to surrender it.

How do you get paid in case of a ULIP?

The method of payment with regard to a ULIP is based on the kind of claim that is made:

  • For a death claim

    The policyholder’s nominee receives the sum assured in a ULIP or the value of the fund, whichever is the higher of the two.

  • For policy surrender

    ULIPs have a policy lock-in term of five years. You can surrender your plan after this. However, you will have to pay charges, but your insurer will pay you the value of the fund on the surrender date. This is computed based on the NAV according to the units you own.

  • For policy maturity

    The entire value of the fund is paid to policyholders at maturity time. This constitutes the amount invested, the returns, and accrued bonuses.

Points to Know Before Investing in a ULIP

You should take note of the following when you plan to invest in a ULIP:

  • The sum assured in a ULIP is an amount that is guaranteed as a payout to the beneficiaries of the policyholder.
  • The minimum tenure of lock-in is five years.
  • The period of grace for premiums paid monthly is 15 days.
  • If, after five years, the policy is not continued, it can be revived within two years.
  • After five years, partial policy withdrawal is allowed.
  • In case of ULIPs in which the policyholder is a child, no withdrawals are permitted till the child reaches 18 years of age.
  • ULIPs are dual policies and investments chosen should be in well-balanced funds to meet any policyholder’s goals.

Bottom Line

Once you know all about ULIPs, you can do your own research to find plans that suit you in the best possible way. It is important to find out details and ask potential insurers all the right questions so that your policy works for you.

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ARN – ED/10/22/30054

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Disclaimer

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale. Life Insurance Coverage is available in this product. Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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