How Do Top-Ups Work In ULIPS?

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When you opt for an insurance policy of any kind, such as a ULIP, you have to pay for it. This cost is known as the premium. Premiums keep the policy operational for its entire term and allow you to enjoy its benefits. When it comes to premium payments, you have the option of doing regular payments or a one-time payment depending on your preference.

A financial product such as a ULIP also has the same option when it comes to premium payments. However, in ULIPs, you can do a top-up premium as well. What exactly is a top-up premium? How does it benefit you? Read on to know more.

What is a ULIP?

A ULIP policy is a type of life insurance that offers the policyholder dual benefits of investment and insurance in the same policy. The policyholder can invest in either equity funds, debt funds, or both of them in the form of balanced funds. This investment is based on the risk appetite and requirements of the policyholder.

The dependents of the policyholder are provided with a life protection cover. If the policyholder were to pass away during the policy term, the insurer will compensate the dependents with a death benefit. This amount can help them stay financially afloat while staying protected from life risks.

How does premium work in ULIPs?

Unlike other life insurance policies which provide just life protection cover to the policyholder, ULIPs also provide the benefit of investment along with insurance. The premium that you pay towards it is used for both purposes. One part of the premium is used for investing in funds offered in ULIPs. The types of funds areequity funds and debt funds. There is a third type which is a combination of both known as balanced funds. The fund that you select should match your risk appetite and your life goals.

The other part of the premium is used for providing life protection cover to your family. They are compensated with a death benefit in your absence to deal with life risks.

What is a top-up premium?

In this policy, you get anadvantage known as a top-up premium. As the name suggests, you can top-up your existing premium by making an additional premium payment with the amount being pre-determined by the insurer. Usually, top-up premium is done to increase the amount of investment in funds.

When should you do a top-up?

When you invest in this policy, your main aim is to gain good enough returns to fulfil your goals and have a financially secure future. However, at any life stage, your priorities might change. This could be after your marriage or after the birth of your child or for some medical procedure. Such changes in your life goals at a certain stage of life might require you to invest more into the funds. This is when you should plan a top-up premium. The extra premium on top of your existing premium can be used to increase your investment amount. The gains can then help you get good returns on maturity.

Things you should keep in mind about this feature

  1. The amount of top-up premium is generally pre-determined by the insurer and specified in the policy documents.
  2. Charges such as premium allocation charge, fund management charge and mortality charge may be applicable on the top-up premium.
  3. The premium allocation charge usually ranges from 1-3%.
  4. Top-up premiums are allowed only till it does not exceed a specified limit of your existing premium.
  5. Generally, you are required to complete the lock-in period of 5 years before you can make a top-up premium.
  6. Some insurers allow a top-up premium even during the lock-in period. You can also withdraw this top-up premium amount if you surrender your policy during this period.

 In case you want more information about other such ULIP benefits, you can get in touch with your insurance advisor.

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