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Know The Difference Between Sum Assured And Fund Value In ULIP

ULIPs has come up fast as a preferred investment choice. Learn more about this attractive investment tool.

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The world that we live in is full of uncertainties. Over the last one-year or so, this fact has become more evident than ever before. A small virus just around a 100 nanometre in size came out of nowhere and shook the whole world [1]. As a result, the global economy came under severe stress. There was also a significant loss of life with almost 2.5 million dead due to Covid-19 globally [2].

The whole crisis has brought about a new realisation of securing one’s future with certainty to counter the uncertainty that exists around us. And the very first step towards doing that is to get a life insurance policy to ensure that your family goes on to live their lives comfortably even if something happens to you. Once that part is covered, investing for your long-term financial goals comes as a close second so that if you are there to take care of your family’s needs, you have financial resources to meet them. By building a corpus through a careful investment strategy and having a life insurance policy, you can ensure that your family gets to live a comfortable life no matter what uncertainties the future may have in store.

Dual benefits in a single package

While one can invest in different instruments to meet their insurance and investment needs, a convenient option is a Unit-Linked Insurance Plan, simply called ULIP that serves both purposes. 

ULIPs also offer flexibility to choose allocation based on your risk profile. If you are willing to take more risk, you can invest in equity through ULIPs. On the other hand, if you are a conservative investor, you can invest in the fixed income asset class through the same ULIP. Since ULIPs involve investment in the equity and debt market, they have the potential to offer optimum returns in the long term 

Sum Assured vs Fund Value

Many investors tend to find finance-related terminologies quite confusing. When it comes to ULIP insurance one of the most misunderstood aspects is the difference between the “Fund Value” and the “Sum Assured”. Let us try to demystify these concepts by making a quick journey into the very structure of ULIPs themselves.

Because ULIP serves these two purposes -- investment and insurance -- there are two different payout components involved. While the “Sum Assured” component comes into effect if the policyholder dies during the policy term, the fund value component is paid out to the policyholder if he/she survives the policy term or surrenders the policy.

To put it simply, the Sum Assured is the minimum guaranteed death benefit that will be paid to the policyholder’s nominee/beneficiaries in case of his/her unfortunate death. This is even if the fund value -- the value of the investment component -- is lower than the sum assured. 

For instance, if your ULIP’s fund value is Rs 5 lakh, but its sum assured is Rs 20 lakh, your nominee will be paid Rs 20 lakh if something happens to you during the tenure of the policy. However, if in the same case, the fund value were Rs 25 lakh, then the nominee would receive the higher amount. 

Where to get a ULIP from?

You must choose a service provider that is known for its superior products and good service record.

ULIP plans by Bajaj Allianz Life Insurance could be an option to meet your insurance and investment needs, which can help you, get your Life Goals Done. Bajaj Allianz Life Insurance’s ULIP plan, Bajaj Allianz Life Goal Assure – A Unit-Linked Non-participating Life Insurance Plan offers unlimited free fund switches. By making optimal use of such a feature in different market conditions, you can work towards maximizing your returns. Other key advantages of this plan include –

  • Tax Saver1 - Like all ULIPs, you can avail tax benefits on premiums paid and maturity benefits through this plan. The premium paid towards this ULIP (up to INR 1,50,000) is exempted from taxes under Section 80C of the Income Tax Act, 1961, subject to provisions stated therein. It also offers a tax-free maturity amount as per Section 10 (10D) of the Income Tax Act 1961. Note that for policies taken on or after Feb 1, 2021, if your annual premium is more than Rs 2.5 lakhs, the ULIP returns will no longer be tax-exempt. They will be treated as capital gain and taxed accordingly. as per the recent Finance Bill 2021. However, the tax exemption under Section 10(10D) would continue for policies with an annual premium less than Rs.2.5 lakhs in aggregate subject to provisions stated therein.
  • Return of life cover charges2 - Also known as the return of mortality charge, in this benefit, the policyholder gets back the entire mortality charge or life cover charges, deducted throughout the policy term at the time of maturity after deduction of applicable taxes, and other conditions specified under the policy being met. 
  • Choice of 4 investment portfolio strategies – This ULIP plan allows policyholders to choose from four different investment strategies to help you meet your life goals based on your risk appetite and investment approach/philosophy.
  • Maturity Benefit in instalments3 - You get the option to receive maturity benefits in installments (payable yearly, half-yearly, quarterly or monthly) spread over a maximum period of five years.

And many more.

With multi-dimensional benefits, a ULIP can be a preferred addition to your investment portfolio. You can use ULIP plans to strike a balance between your insurance and investment needs, and to secure peace of mind by knowing no matter what the future holds, you are prepared for it.


[1] https://www.sciencedirect.com/science/article/pii/S2090123220300540

[2] https://www.worldometers.info/coronavirus/

1 Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

2 Return of life cover charges = return of mortality charges (ROMC) which is payable on maturity, provided all due premiums have been paid.3 Settlement Option is subject to policy terms and conditions

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