The need for life insurance products has significantly increased in India. According to a report, approximately 65% of the Indian population purchase life insurance products to safeguard themselves from the uncertainties of life. During an unfortunate event, you would want your family to be financially secure in your absence. Hence, you would typically select between traditional and non-traditional insurance products to offer financial assistance to your loved ones after your demise.
Although there are numerous traditional products such as term plans, endowment plans, and so on, you should choose a Unit Linked Insurance Plan (ULIP) for its dual benefits. A ULIP plan is a financial product, which combines the benefits of insurance and investment under a single integrated plan. While the investment component can let your diversify your portfolio, the ULIP insurance can provide your selected sum assured value to your family in your absence.
Before you purchase a ULIP policy, you should understand what a sum assured value is in detail:
When you buy ULIP insurance, you should choose an amount, which acts as the life coverage. The selected amount can be termed as sum assured value, which can ensure your family’s financial well-being after your death. As the nominees, your family can decide whenever they want to receive the sum assured amount in your absence. Typically, they can choose to receive it either as a monthly income or a lump-sum amount.
Initially, the minimum sum assured value under a ULIP policy was 10 times of the annual premium. However, after the new rules announced by the Insurance Regulatory and Development Authority (IRDA), the minimum sum assured limit might have changed. Therefore, let’s understand the prominent changes in the sum assured value of a ULIP policy:
| TYPES OF PRODUCTS | MINIMUM SUM ASSURED AMOUNT FOR PEOPLE BELOW 45 YEARS | MINIMUM SUM ASSURED AMOUNT FOR PEOPLE AT 45 YEARS AND ABOVE |
| Single Premium (SP) Product | 125% of the single premium amount | 110% of the single premium amount |
| Regular Premium (RP) along with Limited Premium Paying (LPP) Product | 10 times of the annual premium or 0.5 x T x annual premium, whichever is high | 7 times of the annual premium or 0.25 x T x annual premium, whichever is high |
| Health Regular Premium (RP) along with Limited Premium Paying (LPP) Product | 5 times of the annual premium or Rs. 1 Lakh p.a., whichever is high | 5 times of the annual premium or Rs. 1 Lakh p.a., whichever is high |
The changes made by the IRDA can be positive. While many of you might be sceptical about whether you should opt for it or not, let’s understand the benefits of a low sum assured in ULIPs that can help you take well-informed decision:
- You can generate better returns
When the sum assured amount was high previously, you might have had to pay extra for your life coverage, which is called as a mortality charge. Since you would pay more towards mortality, your returns would eventually decrease.
Since the sum assured amount has reduced, you might have to pay less towards your mortality charges. As a policyholder, you can expect to gain high returns as the minimum sum assured limit has been reduced to 7 times the annual premium today.
- You can decrease the premium value
Usually, a ULIP policy has a lock-in period of 5 years. During the on-going lock-in period of a ULIP policy, you might be unable to withdraw your funds partially. However, after the completion of 5 years, you can reduce your premium amount.
When you purchase a ULIP policy, you might pay a pre-decided premium amount. However, you can decrease your premium value up to 50% of your current premium after the 5th year. Once your premium rate is decreased, you can revise the death benefit accordingly.
To sum up, the primary objective of a ULIP policy can be to offer financial protection to your loved ones. Before selecting a ULIP policy, you should consider your family’s financial requirements, identify the sum assured value, and select a ULIP policy accordingly. Moreover, you should run a background check on the top performing ULIP funds to reap high returns.