Even if you are not familiar with the term, you surely have heard it. A ULIP, or unit-linked insurance plan, combines investing with insurance. A small portion of the premium goes towards safe life insurance, and the remainder is invested similarly to a mutual fund. You make investments over the policy’s life, which could be 5, 10, or 15 years, building up units. ULIPs provide possibilities for investing in equities, which is suited for an ambitious investor, as well as debt, which is suitable for a conservative investor. If desired, you can even choose a balanced plan.
Unit Linked Insurance Plans (ULIPs) are a popular investment option in India that provide both insurance coverage and investment benefits. One of the unique features of ULIPs is the ULIP top-up facility, which allows investors to add additional funds to their policy above their regular premium payments.
In this article, we will explore why availing of the Top-up facility in ULIP insurance can be beneficial for investors.
ULIPs are a highly well-liked investment option because of their balanced risk scope, flexibility, numerous ULIP tax benefits, and insurance bonus. If you don’t want to deal with various instruments, they can easily take the place of other investments and life insurance policies in your plan. A top-up can also be used to improve your ULIP.
Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
What is a ULIP top-up?
A top-up premium is cash a policyholder can add to their regular premium payment and invest in their ULIP. By paying an additional premium, one can boost ULIP’s investing component.
Every time during the policy term, up to the point where the total number of top-up premiums does not exceed a predetermined proportion of your total premium, can be added on. In their policy guidelines, all businesses specify the minimum amount for top-ups. Customers who pay their premiums on time are the only ones who have the option of top-ups. Depending on the policy and insurer, premium allocation fees might range from 1% to 3%. All top-up premiums are considered single premium contracts under the standards. So, the additional funds put into your ULIP insurance should also provide you with insurance coverage.
Do conventional life insurance policies allow for top-ups?
They typically aren’t. Conventional life insurance policies are opaque because they have minimum guaranteed returns, whereas ULIPs have unbundled expenses and market-linked returns. Top-ups are thus typically a component of ULIPs.
What are the associated charges?
- A premium allocation charge, which is a one-time fee subtracted from your premium payment
- A recurrent mortality charge, often known as a fee for providing you with life insurance, that is based on your age
- Charge for fund management
If you are 35 when you purchase your unit-linked insurance plan and decide to purchase a top-up when you are 40, the mortality charges will be those that apply to those who are that age rather than those who are 30. The age obtained at that time also determines the minimum sum insured.
Factors to keep in mind with top-ups
- Five years must pass before a top-up premium must be held for a minimum of five years. But if you cancel your ULIP, you can take your top-up money out even before the lock-in term is up.
- In the final five years of your ULIP tenure, top-ups are not allowed unless you have a Unit-Linked Pension Plan. A Unit Linked Pension Plan may receive an unlimited amount of top-ups.
- Top-ups are a fantastic choice, but they must be utilised responsibly. Only if your ULIP has regularly performed well is it a worthwhile investment.
- ULIPs have the advantage of being transparent market-linked products. When you get a windfall gain, you can add it to your current Unit Linked Insurance Plan, which will act as an additional single-premium policy to the main policy and offer the benefits of a lower premium allocation charge and no policy administration fees.
You should definitely think about a top-up if you already have a unit-linked insurance plan and are happy with its performance and returns. Your investment will only increase, maybe providing you with bigger gains. It’s never too late to make a ULIP investment if you haven’t already. Choose one of the several ULIPs on the market to benefit from this exceptional financial instrument. The ULIP top-up facility is a useful tool for investors to maximise their investment potential. It provides investors with greater flexibility in investment, the potential for higher returns, reduced costs, and ULIP tax benefits. By availing of the Top-up facility, investors can take advantage of market movements and increase their investment when the market is performing well. Additionally, it is a cost-effective way to add additional funds to their policy without incurring significant expenses.