Why Avail the Top-Up Facility in ULIPs

If you have been looking for investment options, then you must have come across the term ‘ULIPs’. When you buy a ULIP insurance plan, you get to enjoy the peace of mind that comes with a life insurance policy as well as the chance to earn returns from market-linked instruments. Similar to other life insurance products, ULIPs, too, require regular payment of premiums. Over the regular premium, you can also opt to pay an additional premium to increase the fund value of your ULIP. This is referred to as the ULIP top-up facility, and there are many reasons it can benefit you. We take a look at the same in this article. 

What is a ULIP policy?

Let’s understand what ULIP policy is and how it works before we go ahead. A ULIP plan is a mixture of investment as well as life insurance. Your ULIP premium is used by the insurer for two purposes – to build your life insurance amount and to invest in the financial instruments of your choice. The life insurance aspect of your ULIP is quite easy to understand; however, the investment portion can get a bit complex.

The investment part works in a similar vein to the concept of mutual funds. The insurer takes funds from several policyholders and pools them together to invest in financial instruments. The policyholder can choose from equity funds, debt funds, or a combination of both called hybrid funds. The returns depend on the performance of your funds. 

Why you should avail the ULIP top-up facility 

• Increases your fund value 

When you are investing in a ULIP plan, you are doing so with a plan to yield high returns. While consistent investment and holding for a long period are good strategies to increase your fund value and the returns it brings, opting for a top-up facility is a great option as well. As per the policy wordings and your needs, the top-up amount will be diverted towards your investments. This is bound to increase the returns you will receive if and when the markets are performing well. 

• Leads to an increase in the sum assured 

There is a chance that you may not be satisfied with the sum assured amount you chose when you bought your ULIP insurance policy. However, with the help of a top-up premium facility, you can increase this sum assured amount as you wish. This is an effective way to increase the level of financial protection your family will receive in your absence. A larger corpus means more financial means to pursue their dreams. 

However, before you pay a top-up premium on your ULIP policy, keep in mind that the benefits from the additional premium will be applicable as per the age at which you make the payment. So, if you have bought a ULIP policy at 40 years of age and are making a top-up premium at age 48, the benefits and charges applicable will be as per the 48 years mark. 

• Minimal charges involved 

When you pay a top-up premium on your ULIP insurance plan, you may have to incur some charges, such as the premium allocation charge. However, do not fret, as these are quite minimal and may not go beyond 1-3% of the amount. Opting for a top-up premium would be thus, more affordable than going for a higher premium right at the start of the policy as the premium allocation charges are very high at the time. What’s more, some companies may return these charges once the policy matures. 

What to keep in mind when availing of a ULIP top-up facility 

• Lock-in period: As you may be aware, ULIPs have a lock-in period of five years within which the policyholder cannot withdraw any funds. There might be a lock-in period involved with the top-up premium as well beyond the regular lock-in period. 
• Not available in the last five years: Most companies do not provide the top-up facility in the last five years before the policy’s maturity. So, remember to make the payment before this duration. 
• Available only for regular payees: Only those who have been paying their ULIP premiums regularly can opt for the top-up facility. 

Also, you should consider a top-up premium payment only if the performance of your ULIP has been good so far. You should talk with a seasoned professional about the nuances of what a ULIP policy is and whether a top-up premium option would be suitable for you.