What are Top-Ups in ULIPs and When Should You Use Them?

Owing to the high popularity and demand of ULIP plans, investors are now keenly looking at the premium top-up feature of ULIPs to increase their scope of investment. All about top-ups in a ULIP and when exactly to use them during the term of your plan.

A ULIP is a relatively newer but highly popular financial product when compared to most traditional plans. The reason being that a ULIP combines the dual benefit of insurance and investment for the modern investor, thereby giving him the assurance of lifetime protection as well as a pool of funds to invest in and reap the benefits from. ULIP full form is Unit Linked Insurance Plan.

Owing to its immense popularity in a short span of time, there is a new feature introduced in ULIP, meaning that the plan now appeals to an even wider section of the investor community than before. This feature is known as top-ups and the following sections talk all about it and when exactly to use them in your ULIP policy tenure.

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What is the ULIP Plan Top-Up Feature?

Since ULIPs are directly linked to market returns, if at any point of time in your ULIP investment tenure, you feel that your plan is performing really well, you can choose to top it up. This means that the ULIP policyholder is given the option to further invest a specified amount into their ULIP, in turn adding to the already existing premium payable towards the plan.

How does this help? By choosing to pay an additional premium amount, the investor can now increase the component of investment of a particular ULIP that’s performing really well in the capital market at the time. Here are some key features to look out for in the top up premium in ULIP insurance before making the decision.

Features of Top-Ups in ULIP Plans

  1. Your insurance company would clearly specify the minimum amount of top-up premium that you can make in your specific ULIP. This would be stated in your ULIP policy document at the time of purchase.
  2. The investor is allowed to top up the premium amount in their ULIP at any point of time during their policy tenure. However, at no time should the total number of top-ups exceed a specific percentage (usually 25%) of the total premium payable towards the plan.
  3. ULIP charges in India vary between different plans and insurance companies. The premium allocation charges range between 1% and 3%.
  4. Premium top-up feature is only available to investors who pay the premium amount towards the plan dot on time.
  5. Every top-up premium made is considered as a single premium contract, meaning that the top-up amount added to your ULIP component should ideally ensure insurance coverage as well as part of the plan.

What are the Charges for ULIP Premium Top-Ups?

There are essentially three kinds of charges involved in buying a ULIP plan:

  1. Charge for allocation of premium which is a single-time charge and is deductible from the premium amount payable
  2. Mortality charge for the Life Insurance benefit of the ULIP policy, which is a recurring charge, unlike premium allocation charge, and is levied depending on the age of the policyholder
  3. Charge for management of the ULIP fund

Note that in case you choose to top-up your ULIP premium, the mortality charge for the plan would be levied at the age you choose to top up the plan and not according to the age at which you purchased the ULIP. Also, the minimum sum assured under the Life Insurance benefit of the plan is also decided based on your age at the time of top-up.

ULIP Top-Up Tax Benefit

Another advantage of availing the premium top-up feature in ULIPs is that it is entitled for tax deductions. The ULIP plan in India is anyway applicable for tax benefits as detailed under Sections 80C and 10D of the ITA, 1961. Now, the top-ups are also liable for income tax deductions under the same sections (mentioned above) of the ITA.

Best Performing ULIPs in India

Here are some of the top ULIP performers in India that you can consider when investing in a ULIP:

ULIP Return After 1 Year Return After 3 Years Return After 5 Years
Tata AIA Life-Top 200 29.89% 14.26% 17.11%
Max Life – High Growth Fund 23.90% 9.68% 14.82%
PNB Met Life – Virtue Fund II 27.02% 10.28% 13.84%
Bajaj Allianz Life-Pure Stock 22.80% 7.15% 12.60%

Other Things to Know About ULIP Top-Ups

There are a couple of points to bear in mind when choosing to top up your ULIP premium:

  • Make sure that you consider the top-up option only if your ULIP is performing considerably well in the market. The top-up investment is wiser only then.
  • Top-up premiums on ULIPs generally have a minimum compulsory holding period for 5 years. In case you wish to surrender your plan before this time frame, the top-up amount can be withdrawn before the end of the lock-in period.
  • You cannot opt for the top-up feature in the last 5 years of your ULIP plan tenure, barring the Unit-Linked Pension Plan, in which case any number of top-ups can be made.

Read More: How 4th Generation ULIPs are Changing Life Insurance in India

In a Nutshell

ULIPs are a great source of investment if done wisely. Their direct link to capital market returns make them an attractive option for the modern investor, not to forget the additional attached insurance benefit that comes along with it. And now with the top-up feature being added to the conventional ULIP policy, it is even more lucrative to invest in a ULIP to enhance the investment component of the plan via the top-up.

To look for the best ULIP plan in India, visit PayBima that offers a host of options for investment in ULIP funds. Make sure to check with your insurer directly the features and benefits of your plan before investing.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, car insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

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