Last Updated on August 15, 2024 by Ali Hamza
A Unit Linked Insurance Plan (ULIP) is a type of insurance product in India that combines the features of both insurance and investment. Premiums paid towards a ULIP plans policy are invested in various funds, such as equity, debt, or balanced funds. Understanding the ULIP benefits, the death and maturity benefits help the policyholders invest better and make well-informed decisions.
Table of Contents
What Is the Death Benefit Under A ULIP Plan?
The death benefit under a ULIP insurance plan is the sum assured and provided to the policyholder’s nominee in the event of their unexpected demise during the policy term.
Death benefit to the nominee depends on the type of ULIP policies.
- Type I – In the event of the policyholder’s death, the nominee or beneficiary is entitled to receive the sum assured, the minimum guaranteed amount specified in the policy, or the fund value, whichever is higher. Therefore, if the fund option underperforms and the value is less, the sum assured is the guaranteed death benefit.
- Type II – The insurer will pay the sum assured and the fund value in the event of the policyholder’s death.
Therefore, comparing the features and understanding the benefits is important to choose the best life insurance plan.
What Is the Maturity Benefit Under A ULIP policy?
The maturity benefit under a ULIP investment is the amount the insurance provider gives to the policyholder if they survive beyond the policy tenure. It is equal to the fund value less the applicable charges.
If the ULIP Policy is held for a short period, the absolute returns on the ULIP funds can be calculated as:
Absolute Returns = [(Present Net Asset Value – Original Net Asset Value)/Original Net Asset Value] *100
If the ULIP policy is held for a longer period, the returns on ULIP are calculated as Compounded Annual Growth Rate (CAGR):
Compounded Annual Growth Rate = {[(Present Net Asset Value/Original Net Asset Value) ^ (1/Number of Years)] – 1} *100
Important Pointer to Consider
Having understood what death and maturity benefits mean, here is a detail about the important pointers to consider.
- Sum assured – The sum assured is the fixed amount of death benefit provided under a ULIP policy, determined at the time of policy inception. It is generally equal to the base coverage amount the policyholder is entitled to at the time of death.
- Fund Value – The accumulated value of the investments made under the policy is the net asset value (NAV) of the funds in which the premiums were invested. This value and the ULIP maturity benefits can increase or decrease depending on the performance of the investment funds.
- Loyalty additions – Some insurance providers offer loyalty additions that add value to the amount accumulated to boost the wealth plan. For example, Tata AIA Insurance ULIP plans provide loyalty additions as incentives to the policyholders for staying invested in the ULIP plan consistently over the policy tenure.
- Mortality charges – The insurer levies the mortality charges to ensure insurance protection and cover certain other expenses. It is based on the sum at risk, the fund value reduced from the sum assured. The sum at risk is the amount the insurer has to pay in the event of the policyholder’s death. The mortality charges decrease with an increase in the fund value through the policy tenure.
- Bonus – Some ULIP Plans may pay a bonus as a maturity benefit, an additional amount paid to the policyholder over and above the fund value. The insurance company determines the bonus based on the performance of the underlying funds and the company’s profits.
- Tax implications – The proceeds from the ULIP plan will be taxable if the premium paid annually exceeds ₹2.5 lakhs in any financial year during the policy term.
Conclusion
ULIP Plans are life insurance plans that provide policyholders with death and maturity benefits. In the event of the policyholder’s death, the nominee or beneficiary is entitled to receive the sum assured or the fund value, whichever is higher. On the other hand, upon completion of the policy term, the policyholder is entitled to receive the maturity benefit, which is the fund value minus any applicable charges. In addition, ULIP Plans also provide several other benefits such as bonuses, loyalty additions, etc., subject to the terms and conditions.
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