Section 10(10D) of the Income Tax Act of India exempts the sum assured of ULIP from tax liabilities. However, this amount must meet some conditions to qualify for tax exemption. If this policy term starts before 31 March 2012, its total paid premium amount must be lower than 20% of the assured sum. Its limit is 10% of the sum assured if purchased later on.
What is Sum Assured in ULIP: How to Choose and Benefits
Before you buy a ULIP, you need to understand all its terms and features properly. Sum assured in ULIP is an aspect you must be careful of while choosing a plan. It is the fixed minimum amount that a nominee is eligible to get if a policyholder dies within the coverage period.
So, let's understand some of the must-know aspects of the sum assured amount of ULIP.
What Is Meant by the Sum Assured in ULIP?
How to Choose a Sum Assured in ULIP?
Insurance companies provide different ULIP products with diverse premiums. You need to choose one of them according to your requirements. Nevertheless, since the sum assured amount stays the same throughout its term, you have to take into account several aspects. These are listed below:
- Annual Family Budget: You need to ensure that the sum assured amount your family will receive is sufficient to get on with their lives and livelihoods. For this, you first need to be aware of the total annual expense of your family in the current and previous years. Then, you can choose a sum assured amount at par with your family’s annual expenses.
- Upcoming Large Expenses: You may have additional expenses like marriage or higher education. In such cases, you need to ensure that the sum assured in ULIP helps your family manage those bigger expenses without your income.
- Existing Liabilities: You also need to consider your current liabilities while deciding your sum assured amount. If something unfortunate happens to you, the sum assured should be able to help your family close it. Otherwise, it may be financially challenging for your near ones to repay.
- Remaining Working Years: The life cover part of ULIP acts as an alternative to the savings you would have made if you had worked until retirement. So, you will have to calculate how many working years you have remaining while purchasing the ULIP. If it is higher, the sum assured should ideally also be more.
What Is the Benefit of Increased Sum Assured in ULIP?
What Are the Different Pay-Out Cases Available in ULIP?
In a ULIP, your insurance company invests a fixed percentage of the premium in bonds and stocks. As a result, this insurance plan helps you earn returns and grow your capital.
The maturity benefit of your ULIP is the fund value of your policy when its terms expire. This maturity value will be higher with higher fund gains. You receive the total value of your fund when your policy matures.
Surrender ValueInsurance companies let you close your ULIP voluntarily after the lock-in period expires. If you surrender your ULIP prematurely, the company will give you the fund value calculated on that date. However, they will deduct a certain charge for this facility.
The death benefit is an amount that a policyholder's nominee gets in case of their death before the ULIP matures. A policyholders’ families will get the highest of the following amount as death benefit:
- Sum assured
- Present fund value of your investment
- 105% of the total paid premium
The sum assured in ULIP refers to a fixed amount that nominees will get owing to life coverage component of this policy after the premature death of policyholders. Therefore, individuals must ensure that this amount is sufficient for their family members to lead their livelihoods for an extended period.
FAQs About Sum Assured in ULIP
Following are some documents that you will have to submit while claiming the sum assured amount:
- Duly filled-in claim form
- Photo ID proof of nominee (Voter id card, Adhaar card, passport etc.)
- Original policy documents
- Bank account details of a nominee
- Death certificate
- Medical records
- Attending doctor's statement
The sum assured amount is the total amount of money that nominees can get after the demise of policyholders. This amount is fixed while purchasing the insurance plan. However, the fund value refers to the total aggregated amount of your investment made through ULIP. It can fluctuate according to the current market performance of your fund.
The sum assured amount is the maximum amount individuals can secure as a life cover. In case of their death, their nominees can get at least this amount. On the other hand, the maturity amount refers to the total value of all units in a ULIP fund held by policyholders.
Important Guides Related to ULIP Plans
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.