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Undeniably, having a ULIP policy has multiple benefits. But at the same time, it is important to understand each and every aspect related to ULIP, especially its terminology and the way of functioning, before buying one. For example, a unit-linked insurance plan is a 2-part financial tool, where your premium is divided between insurance cover and investment corpus, based on your financial requirements and the policy guidelines.
In this article, you will understand all about fund value in ULIPs.
When taking a ULIP policy, your agent or insurer must inform you that a ULIP policy has a minimum lock-in period of 5-years. Other than that, when you opt-in for a ULIP policy, as a policyholder, you have a set of funds to choose from to invest in based on your risk-taking capability and the current market conditions. The total fund value in ULIP is the total monetary value of the units that a policyholder owns.
To calculate the fund value in ULIP on a particular day, you can simply multiply the number of units held by the NAV (Net Asset Value) of a single unit on that particular day. However, it must be noted that the fund value will keep changing daily based on the NAV of the unit on each day. So, the total fund value in ULIP directly depends on the ULIP fund performance.
Net Asset Value or NAV is the value of one fund unit. It is calculated by deducting the basic policy charges and the cost of associated liabilities from the assets of the fund. NAV is used to measure the actual price of a fund’s single unit and helps in the estimation of the total fund value in insurance.
Not all investors are well-aware of the finance-related terms of the different types of policy. And to be honest, with so many investment options and various financial tools, it’s quite tough to know everything. However, as an investor, you should be well-aware of the terminologies in the policies that you want to invest in. This helps you in having more control over your investment. For example, many people confuse the fund value of a ULIP policy with the sum assured in ULIPs.
However, the fund value and sum assured are two different aspects of ULIP plans. Read on to know the difference between both of them.
As ULIP is a 2-part policy, with insurance and investment involved together, there are two different payout components involved. These two different components are Sum Assured and Fund Value.
This component of the ULIP policy payout comes into effect in case of the policyholder’s demise during the policy term.
This component of the ULIP policy payout comes into effect when the policyholder has survived and has paid all the policy premiums or in case of surrender of policy for any reason.
So it is of utmost importance to be clear about these terms. Also, it is advised that before taking out the money from the policy account, you should use the ULIP fund value calculator and then liquidate the sum based on ULIP fund performance.
In this policy, the investment risk in the investment portfolio is borne by the policyholder.