ULIPs are popularly known amongst investors as a way to produce wealth for the future. But what if you could increase your investment returns to earn better? The top-up facility enables you to do so with a hassle-free process. Here’s everything you need to know about additional premiums in ULIP products, also known as the top-up feature.
Additional premium via Top-up
A top-up facility is where the policyholder can invest money into his/her ULIP over and above the current premium value.
There’s no compulsion to increase the insurance aspect of the ULIP. But some policies based on the framework of a ULIP increase the sum assured in agreement with the top-up premium.
A top-up in a ULIP policy can be done anytime during the life of the policy until the sum total of top-up premiums doesn’t exceed a specific value of the total premiums paid. Every company clearly defines the minimum top-up quantum in the policy document itself. But this option is available only for disciplined policyholders who pay their premiums on time.
The premium allocation charge of a top-up plan is anywhere between 1% and 3% and varies from policy to policy.
Now, let’s cover some important points before you go for a top-up premium:
- Sum assured
The sum assured is defined as a percentage of the total premium paid until the policy matures. The sum assured increases with a top-up premium. The additional benefits will depend on your age during the top-up and not the age when you first invested in the ULIP. You may use a ULIP calculator to understand how the sum assured and premium amount depend on each other.
- Lock-in period
A lock-in period is the minimum period of holding an investment. Some insurers set a 5-year lock-in period on the top-up premium invested in the ULIP. A ULIP is a long-term product. Staying invested for a long time can help you earn more from a ULIP. ULIP returns of 10 years are often held in high regard by investors. Still, there could be situations in your life where you need the money to meet any exigency. You may consider surrendering the ULIP, including the top-up premium, but it won’t be suitable to do so if there’s a lock-in period. Thus, you must know the lock- in period associated with each top-up premium.
Costs associated with a ULIP may appear to reduce your contribution towards the investment, so you need to look at it from a broader perspective. For illustration, a mortality charge applies to a top-up premium. It depends on the age of the policy subscriber. Although you may have bought the policy many years ago, the mortality charge will be applicable as per your age during the top-up.
A top- up option allows you to make the most from a well-performing ULIP fund. A quick look at the terms and conditions of a ULIP contract will help you know more. For illustration, some ULIP plans may not allow you to go for a top-up option in the last 5 years of the policy. You may want to consider or talk to your insurance provider before investing.
How does additional premium in policies framed on the concept of ULIP work?
As the top-up premium is paid over the original premium amount, this excess money is treated as a single premium that gives you more coverage. Therefore, the minimum sum assured you can gain is 25% of the top-up premium for policyholders up to 45 years of age. For persons above the age of 45, the sum assured is 110% of the single premium. This is how your coverage amount can be increased with the top-up installation.
In the event that you don’t want the sum assured to increase but your fund value to, you can pay 25% of your regular premium. This is the minimum limit that you can allocate to your investment to gain good ULIP returns in 10 years. While making your decisions, ensure that you use a ULIP calculator online for more accuracy and understanding of your estimates.