How Do Top-Ups Work In ULIPS?

Even if you are uninitiated, you must have heard the term ULIP. A ULIP or Unit-Linked Insurance Plan is a mixture of insurance and investment. A small amount of the premium is attributed to secure life insurance and rest is invested just like a mutual fund. You invest through the term of the policy which could be 5, 10 or 15 years, accumulating the units. ULIPs offer options that invest in equity which is apt for an aggressive investor as well as debt suitable for a conservative one, or even a balanced strategy if you want it.

Due to their balanced risk scope, flexibility, multiple tax benefits, and insurance bonus, ULIPs are a very popular investment option. They can easily replace other investments and life insurance policies in your plan if you don’t want to deal with multiple instruments. You can also enhance your ULIP with a top-up.

What is a ULIP top-up?

A top-up premium is a sum that a policyholder can invest into their ULIP, adding to the existing premium payment. One can increase the investment component of a well performing ULIP by paying an extra premium.

A top-up can be done at any point in the policy term till the total number of top-up premiums doesn’t go beyond a specific percentage of your total premium. All companies define the minimum amount for top-ups in their policy documents. The option of top-ups is exclusively available for customers who make timely premium payments. Premium allocation charges can range from 1% to 3%, depending on the policy and insurer. According to norms, every single top-up premium is a single premium contract. It means that the extra amount added to your ULIP should also buy you insurance cover.                

Are top-ups available for traditional life insurance policies?

Generally, they aren’t. Traditional life insurance plans have minimum guaranteed returns, which makes them opaque, whereas ULIPs have costs that are unbundled, plus market-linked returns. Hence, top-ups are generally a feature of ULIPs.

What are the charges involved?
 

• A premium allocation charge (one-time charge), which is deducted from your premium amount
• A mortality charge, or charge for granting you a life insurance, which depends on your age and is recurring in nature
• Fund management charge

If you are 35 while buying your Unit-Linked Insurance Plan, and choose to buy a top-up at the age of 40 years, the mortality charges will be those applicable for 40 years of age and not for 30 years. The minimum amount of sum assured is also determined by the age attained at that time.

Things to Remember About Top-Ups
 

• The minimum compulsory holding period for a top-up premium is five years. However, if you surrender your ULIP, you can even withdraw your top-up amount even before your lock-in period is over.
• Top ups are not permitted in the last five years of your ULIP term, except for a Unit-Linked Pension Plan. For a Unit Linked Pension Plan, the number of top-ups allowed is unlimited.
• Top-ups are a great option, but should be used wisely. It’s a worthy investment only if your ULIP has shown a good performance consistently.
• The benefit of ULIPs is that these market-linked instruments are transparent. When you have a windfall gain, you can pump it into your existing Unit Linked Insurance Plan, and it will function as a single-premium policy added to the primary policy, along with the advantage of a lesser premium allocation charge plus zero policy administration charges.

Conclusion

If you have a Unit-Linked Insurance Plan already and are satisfied with the performance and returns, you can very well consider a top-up. It will only boost your investment and potentially give your better returns. If you haven’t invested in a ULIP yet, it’s never too late. Take your pick from the numerous ULIP available in the market and reap the benefits of this unique financial instrument.

• Promise4Growth Plus - One of the most promising ULIP that you will come across is the Canara HSBC Life Insurance Promise4Growth Plus. It is a protection and savings-oriented Unit-Linked Insurance Plan that will give you a wide range of options including 7 different fund options, 4 different portfolio strategies, and 2 different death benefit options. Bonus benefits are Loyalty Additions and Wealth Boosters. All of this and more is just a few clicks away!