Finance

Should you opt for ULIP with minimum sum assured?

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Sum assured is the amount that the nominee receives in case of an untimely death of the policyholder. The higher the sum assured, the higher are the mortality charges that are deducted from the premium amount. As per the regulations of IRDAI, people under 45 years of age can buy ULIPs with sum assured amount 10 times smaller than the premium paid. Although, if you keep the premiums as it is and go for a smaller sum assured then, in that case, the insurance cover decreases and the amount invested increases. Which ultimately suggests higher returns on your paid premiums.

However, it has one drawback. When you opt for 10 times lesser sum assured than the premium paid, you do not get to enjoy tax benefits that you would get otherwise. Now the question is, should you opt for ULIPs for the minimum sum assured which is 7 times of the paid premium. In a few cases, it is beneficial. To know how opting for a minimum sum assured can benefit you read further.

As per the regulations of Insurance Regulatory and Development Authority of India (IRDAI), the minimum sum assured for individuals below 45 years of age has been reduced from 10 times to 7 times of the premium paid for ULIP.  Earlier this facility was available for people above 45 years of age only. This change in regulation brings uniformity amongst all age groups buying ULIP. ULIPs with 7 times the sum assured of the annual premium paid can yield more returns as the part of premium invested is higher and mortality charges are smaller.

The amount paid in case of policy holder’s death during the policy term is subject to tax exemption even in case of ULIP with 10 times lesser than premiums paid annually.

Making any changes in the sum assured amount after buying a policy is not possible. Once you agree to all the terms and conditions mentioned in the policy documents, you are not allowed to make any further changes in the sum assured or premium amount after that. You must stick to the details mentioned in the signed policy documents. Although, you can switch between funds in the investment part.

Sum assured is the minimum amount that the nominee of the policy holder receives in case of demise of the policyholder during the policy term. This amount can be extended if the total premium paid for the number of years exceeds the sum assured in that period of time and the fund value as on that day, the insurer will pay 105 percent of the premiums paid.

The two major conditions in which the insurer mustpay higher amount to the nominee than minimum sum assured on ULIP are:

  1. When investor corpus is higher than the minimum sum assured and total premiums paid.
  2. When the total premiums paid for number of years exceed the sum assured for that time period.

You must take into consideration all these points before opting for the minimum sum assured amount on ULIP.

 

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