What Is Sum Assured In Unit-Linked Insurance Plans (ULIPs)?

Unlike standard policies, Unit-Linked Insurance Plans (ULIPs) provide both life insurance and investment benefits. This financial tool uses a portion of the premium paid to provide life insurance coverage, and the remainder is used to build an investment corpus. It is critical for you to stay informed on the value of your investments as an investor. As a result, it's critical that you learn how ULIP fund values are computed.

ULIPs have a five-year lock-in duration. ULIPs provide payouts in the event of surrender, maturity, or the insured's an untimely death. Let's take a look at two terminologies related to ULIPs that can help you better grasp their benefits. 

In the event that the policyholder dies during the policy term, the insurer promises to pay a specific sum to the policyholder's family. The sum promised is the name given to this amount. The sum assured linked with a ULIP plan guarantees that, in the event of the insured's death within the policy term, at least this amount will be paid to his family.

When is Sum Assured Paid Under ULIPs?

A ULIP plan's pay-out might be received under three different circumstances. The sections that follow describe how to use each option: 

• Surrender In Accordance With Policy

If a policy owner surrenders it during the lock-in term, the insurer deducts the applicable costs from the fund value and pays the surrender value once the lock-in time has ended. ULIPs have a 5-year lock-in duration.

A 5-year lock-in term applies to ULIPs, after which you can surrender the policy. The insurance provider will waive the surrender fees and reimburse you the value of the fund on the day of surrender. This will be calculated based on your units' NAV.

The insurer pays the fund value if the policyholder surrenders the insurance after the lock-in term has expired. The fund's worth is determined by multiplying the NAV (on a given date) by the number of units held.

• Upon Policy Maturity 

The fund value is paid to the policyholder at the end of the policy period. The total fund value is given to you when the fund matures. This includes the money you have put in, the interest you have earned, plus any incentives earned over time.

Must read: Lock-in Period in ULIPs Explained    

• Upon The Death Of The Policyholder

When a death claim is filed, the nominee is paid the greater of the sum assured or the fund value. The sum assured or fund value, whichever is bigger, is paid to the policyholder's family if he dies within the policy period. As a result, if the fund has underperformed and the fund value is less than the sum guaranteed, the sum assured will be paid. 

Conclusion

You can make an informed decision before purchasing a ULIP now that you know how to calculate the payment. Under a ULIP, a policyholder can invest in a variety of funds based on risk tolerance and market conditions. The fund value refers to the overall monetary value of the policyholder's units. Sum-assured works pretty well with ULIPs. A ULIP plan's sum assured guarantees that, in the event of the insured's death within the policy term, at least this amount will be paid to his family.

Also read

Basic Things To Know About ULIP Before Purchasing It

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.