While Unit Linked Insurance Plans require you to pay the same premium instalments every year, they also allow you to top up your policy. If you happen to enjoy a windfall gain and want to pump that money into your Life Insurance Policy or if you want to make the most of a high performing ULIP plan, opting for a Top-up premium is a great thing to do. A Top-up premium can be paid according to your convenience over and above the basic premium that is specified in the insurance contract.
As per the Insurance Regulatory and Development Authority of India (IRDA) regulations, each top-up premium needs to be treated as a single premium contract. In simpler terms, the extra money that you pump into your unit linked insurance plan via top-up premium will also be utilized to increase your insurance coverage. The minimum sum assured for single-premium policies is 125% for individuals up to 45 years of age. For those above 45 years, the minimum sum assured is 110% of the premium paid.
Charges and Features
When it comes to charges, typically, you would need to pay a one-time premium and allocation charge which is deducted straight from the premium paid. Additionally, you may even have to pay a recurring mortality charge and fund management charges. Mortality charge is the cost of the life insurance cover. It is charged as per your current age, and not as per the age at which you bought the policy. For instance, if you buy a ULIP plan at 40 years of age and opt for a top-up at 45, the mortality charge applicable will be that of a 45-year-old person and not that which would be charged from a 40-year-old. The older you are, the higher will be the mortality charges.
Similarly, the minimum sum assured is decided on the attained age. However, you need to keep in mind that the minimum holding period of top-up premiums is 5 years. If you plan to surrender your unit linked insurance plan, you can withdraw the top-up money without waiting for the lock-in period to end. Moreover, thanks to the availability of ULIPs, you can easily opt for a Top-up premium from your insurance provider’s website.
In a regular unit linked insurance plan, you can make a top-up at any point of time during the policy term. However, the total top-up premiums paid should not exceed the sum total of the regular premiums paid until that point of time. But in case of a Unit-Linked Pension Plan, you can make an unlimited number of top-ups.
Why Choose to Top-Up your ULIP Premium?
Top-ups are a great way to utilize surplus cash by investing it in a plan that offers high ULIP returns. If you feel that your current plan is already doing well and if you have extra cash in hand, you can use the top up the premium option to add more money into your policy. It is cheaper than buying a new investment plan altogether, plus you aren’t bound to commit to any extra investment every month.
Investing in ULIPs not only helps you with investment but also provides protection. Also, you can invest your surplus cash by choosing ULIP top-ups and get good returns. However, you should use the top-up option wisely and monitor the performance of the fund regularly.
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