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What are the Maturity Benefits in a ULIP Plan: Fund Value Sum Assured or Only Fund Value?

A maturity benefit of ULIP is the amount offered by the insurer to the policyholder if the policyholder survives beyond the maturity period of the policy. know about sum assured and fund value.

  • 8,143 Views | Updated on: May 20, 2024

We all know that getting life insurance is the best and most reliable way to secure and provide protection for our loved ones’ after you. In case you survive the policy’s term, you are eligible for a maturity benefit equal to all premiums paid with most of the policies. But what if we told you there was a way to invest that included the benefits of both life insurance and market-based investing strategies all in one? Isn’t this too good to be true? Such policies are called ULIP.

What is a ULIP policy?

A Unit Linked Insurance Plan (ULIP) is a type of insurance with a 5-year lock-in period that integrates insurance and investment into one convenient bundle. The goal of ULIP is to provide both insurance coverage and wealth accumulation, with the insurance company investing a chunk of money in the insurance policy and the rest in a fund that is based on stocks, debt, or both and matches your long-term goals. Retirement planning, children’s education, or any other big event for which you may save are examples of these aspirations.

Since ULIPs are hybrid plans, they provide both sum assured and fund value benefits. Assuming you survive the ULIP’s final term, you can wonder what you’d receive between the two? Let’s take a closer look at the difference between the amount assured and fund value to have a better understanding of this.

Sum Assured vs. Fund Value

Sum Assured

In a Unit Linked Insurance Plan, the sum assured refers to the amount that the insurer pays to the policyholder’s loved ones if the policyholder dies during the policy’s term. In case of the insured event, it is the sum promised by the insurer to the policyholder’s beneficiaries. This amount practically promises the policyholder and their family that, in the case of a catastrophic catastrophe, the surviving relatives will receive a sum equivalent to the total guaranteed.

Fund Value

When you buy ULIP, you get a certain number of units in the fund. The ULIP fund performance or fund value is equivalent to the combined total value of the funds in your holdings. As a result, the returns you receive from your ULIP — that is, the fund value at maturity – are referred to as the fund value. A ULIP’s fund value is simple to determine. It’s calculated by multiplying the NAV of each unit in the fund on every given day by the number of units you own.

Moving on to the maturity benefits of ULIPs - they differ from traditional insurance policies in a few ways. The policy is deemed to have matured if you, the policyholder, live to see the end of the ULIP’s term, and the fund value is paid out to the policyholder upon maturity.

ULIP Tax Benefits

Until Budget 2021, the advantages on ULIP maturity were completely tax-free if certain requirements were met, as outlined in Section 10 (10D) of the Income Tax Act of 1961. As a result, now that we’re on the other side of the FY22 budget, the taxability of ULIP benefits based on maturity can be separated into two groups.

  • Returns on maturity are called ULIP tax benefits for those purchased before February 1, 2021.
  • In the budget for FY 2021-22, it was declared that for ULIPs authorized on or after February 1, 2021, the profits from the plan will now be taxed as capital gain if the accumulated premium exceeds ₹2.50 lakhs in any financial year during the policy’s term.

It is vital that you compare all of the plans and select the one that best meets your needs!

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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

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