Common Unit-Linked Insurance Plan Terminologies
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Unit Linked Insurance Plans (ULIPs) provide market related returns whilst providing life cover to financially safeguard you from any uncertainty. For the individuals who are new to the world of investment and insurance, we have explained some basic terminologies of ULIP in this article to help you know ULIPs better.
Common Unit-Linked Insurance Plan Terminologies
Following are some of the terms which every ULIP investor must know -
1. Fund Value
Under an ULIP, a majority part of the premium paid by you is channeled towards investments in funds. The investments also maximised over time. The fund value of an ULIP helps to indicate the total value of the invested funds as on the date. To calculate the fund value, you can multiply the number of units you own by the Net Asset Value (NAV) .
2. Net Asset Value (NAV)
In an ULIP, Net Asset Value (NAV) refers to the value of a single unit of your investment. An investment fund, which is a collection of investments from multiple investors, is divided by the number of outstanding units. Therefore, the NAV of a fund is the price of a single unit.
3. Premium
As a policyholder of an ULIP, you are required to pay the premium for the continuance of the policy. You can choose the term of the premium payment based on your financial decisions. You have the liberty to pay premiums monthly, quarterly, half-yearly, or annually as per the mode selected by you at the inception of the policy.
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Failure to pay the premiums on time may lead to reduced benefits or lapse of the ULIP Policy. Therefore, it is important to pay your premiums regularly, so that you can maximise benefits from the investment made to achieve your objectives.
4. Death Benefit
The death benefit is known as the total amount, which is payable to the life assured’s nominee by the insurance company on the unfortunate demise of the policyholder. It can either be the sum assured or the fund value, whichever comes out to be higher.
What your beneficiary receives totally depends on the plan you opt for at the beginning. The nominees usually have the option to obtain the death benefit either as a lump-sum or in monthly instalments.
5. Maturity Benefit
Maturity benefit is offered to the policyholder when the term of the policy gets ended. You are entitled to avail tax free maturity amount as per the Section 10 (10D) of the Income Tax Act, 1961, subject to the provisions stated therein.
6. Lock-in Period
A lock-in period is a fixed period of time till which you are not allowed to withdraw your investments. In case of ULIP, if a policyholder decides to surrender the policy before the completion of the lock-in period, the fund value is transferred to a discontinuation fund. The policyholder can make partial withdrawals if the lock-in period is over. Usually, aULIP Policy has a lock-in period of 5 years.
7. Switching Option
A ULIP plan allows you to invest in multiple fund options at the same time. However, the investors also have the liberty to switch between these ULIP funds at their convenience. In most of the ULIPs, 4 fund switches are allowed free of cost.
8. Top-ups
The top-up premium is the surplus amount paid by the investor in addition to the base premium. If you as a policyholder wants to increase the amount of your investment in funds, you can do so through the top-up option.
9. ULIP Charges
The insurance companies is bound to levy certain charges on the policy under a ULIP Plan, some of the levied charges are as follows:
- Policy administration charges
- Fund management chargesterm-insurance
- Mortality charges
- Premium allocation charges
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Also Read:- All About Unit Linked Insurance Plans (ULIPs)
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
