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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
The sum assured in ULIP represents the guaranteed amount payable to the nominee in the event of the policyholder's demise during the policy term.
Unit-Linked Insurance Plan (ULIP) is an insurance product that also offers investment opportunities. It is a type of linked plan where a portion of the premium is invested in different funds on the basis of the policyholder’s preference. A portion of your premium is invested toward your life insurance coverage, while the remaining amount is invested in equities, bonds, and other market-linked instruments.
There are various components of ULIP that include the sum assured, accrued bonuses, fund value, etc. Since ULIP offers both life insurance and growth on your investment, many people often get confused about what is sum assured in ULIPs. Understanding the concept of sum assured in ULIP (Unit Linked Insurance Plan) is crucial for informed decision-making when investing in such financial products.
You might wonder what is sum assured in ULIP plan? The sum assured in ULIP (Unit Linked Insurance Plan) is the minimum guaranteed amount that the insurance company promises to pay to the policyholder’s nominee in case of the policyholder’s demise during the policy term. It acts as a financial safety net, providing a specified benefit to the beneficiary regardless of the performance of the underlying investment funds in the ULIP.
The higher the premium paid, the greater the sum assured in ULIP. However, there is also an insurance element involved in ULIPs. Some people confuse this with the sum assured in life insurance. To understand this, let us analyze a ULIP and a term insurance policy.
In the case of a term insurance plan, the sum assured is a predetermined amount that is specified in the policy document. The insurance company has to pay the sum assured to the nominee in the event of death during the policy term.
For instance, if you pick a term insurance plan with a sum assured cover of ₹1 crore, your loved ones will receive this entire amount in the unfortunate event of your demise within the policy term. Under this plan, there is no maturity benefit; therefore, the entire premium amount goes to cover the insured’s life. Therefore, a term insurance plan is a cost-effective insurance that is known for a higher sum assured value.
In sum assured in ULIP, the fund value at the time of claim settlement is also included. Depending on the policy terms, the insurance provider can offer your nominee the sum assured or the fund value or the higher of the two. By choosing an adequate sum assured in ULIP, you can ensure that your family’s financial future is secure, providing peace of mind and stability during challenging times.
In addition, ULIP also offers the policyholder a death or maturity benefit, and the sum assured is paid after maturity. Along with the sum assured, policyholders get various other benefits, such as a bonus, which gets added to the sum assured after a few years of the policy.
As you know, the sum assured is a fixed amount of money paid to the beneficiary in case of your unfortunate demise during the policy term. When you purchase the ULIP, you choose the sum assured amount. This amount is guaranteed by the insurer, unlike the fund value, which fluctuates based on market performance.
If you pass away within the policy term, your beneficiaries will receive the sum assured amount irrespective of the ULIP’s fund value at that time. This ensures your loved ones have a predetermined amount of money to rely on.
In some cases, ULIPs offer different payout options for the death benefit. These might include getting only the sum assured or receiving the higher amount between the sum assured and the fund value.
Many people find finance-related terminologies confusing. The difference between the “Fund Value” and the “Sum Assured in ULIP” is one of the most misunderstood aspects.
The total value of your invested money at a given point in time is known as the fund value. It is determined as per the Net Asset Value (NAV) of your assets and is calculated by multiplying the NAV by the total number of units held.
NAV=(Assets – Liabilities) / Total Shares
The sum assured in ULIP is the predetermined amount of money that your loved ones will receive as a death benefit. However, the fund value keeps changing as per the fluctuations of the market.
Since ULIP serves two purposes, investment, and insurance, there are two different payout components involved. While the “Sum Assured” comes into effect after the policyholder’s demise during the policy term, the “Fund Value” is paid out if the policyholder survives the policy period or surrenders their policy. Sum Assured is the minimum guaranteed death benefit paid out to the policyholder’s nominee/beneficiaries.
ULIP tax benefits under the Indian Income Tax Act are primarily based on two key provisions: Section 80C, which allows a tax deduction on life insurance premiums, and Section 80CCC, which exempts the amount contributed to pension plans from taxation. Section 80C allows you to deduct up to ₹1.5 lakh per year from your taxable income for premiums paid towards ULIPs.
As a policyholder, you must take the following things into account:
To avail of the tax benefit, your ULIP must remain active for at least five years. Stopping premium payments before the five-year mark can lead to the reversal of tax benefits claimed in previous years. Therefore, for the most significant tax advantages, ensure you have a long-term investment horizon and consistently pay premiums throughout the policy term.
The payment method in ULIP depends on the type of claim.
The nominee of the policyholder gets either sum assured or fund value, whichever is higher.
ULIPs have a 5-year lock-in period, after which you can surrender a policy. The insurance company will cut the surrender charges and pay you the fund value on the day of surrender. This will be calculated as per the NAV of your units.
The total fund value of the sum assured in ULIP is paid to you at the time of maturity. This includes your invested capital, the returns on your investment, and any bonuses accrued over time.
Before investing, one needs to pay attention to a lot of detail. Below mentioned are a few pointers that you must consider before investing in ULIPs.
The sum assured in ULIP (Unit Linked Insurance Plan) serves as a pivotal component, offering financial security and investment opportunities simultaneously. By providing a predetermined amount to the nominee in the event of the policyholder’s demise, it ensures protection. Additionally, it functions as an investment tool, allowing policyholders to grow their wealth through market-linked funds. Understanding the importance and implications of the sum assured in ULIP is crucial for making an informed decision that aligns with one’s financial goals and risk appetite. Therefore, whether purchasing online or offline, the sum assured in ULIP remains a cornerstone, providing both protection and investment benefits.
1
The sum assured in ULIP is the minimum amount guaranteed to be paid to the policyholder’s nominee in case of the policyholder’s demise.
2
The sum assured in ULIPs is typically determined based on factors like age, income, and financial goals chosen by the policyholder at the time of policy inception.
3
Yes, you can usually change the sum assured in ULIP policy, subject to certain terms and conditions outlined by the insurance provider.
4
The sum assured in ULIP can be fixed or flexible depending on the variant chosen; some ULIPs offer the flexibility to change the sum assured during the policy term.
5
The base sum assured in ULIP represents the minimum guaranteed amount payable to the nominee upon the policyholder’s demise.
6
Tax implications related to the sum assured in ULIPs may vary based on prevailing tax laws and regulations; it is advisable to consult a tax advisor for personalized guidance
7
The sum assured in ULIP can impact its maturity benefits, with a higher sum assured often leading to potentially higher returns upon maturity.
8
When choosing the sum assured in ULIP policy, consider factors such as your financial obligations, risk appetite, future financial goals, and your family’s financial needs in your absence.
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.
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.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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