Did you ever use a prepaid mobile service? The top up or chota credit is a common terminology where only the talk time increases and not the validity.
The concept of Top-Up premium in ULIP is very similar to the chota credit!
Top-up is a facility provided in Unit Linked Life Insurance Policies. It is a flexibility that is unique to ULIPs. It is an amount that can be paid by you at any point of time to increase the fund value without much charges attached to it.
If the fund value increases and not the sum assured, but only till 25% of all regular premiums paid. Top Up premium can only be paid if all the regular premiums have been duly paid and the policy is inforce.
Let us understand with an example.
Amrita invested in ULIP with Rs 25,000 annual premium for 25 years. Her Sum Assured was Rs 2,50,000. Now, after paying few regular premiums, she wanted to Top Up her Fund Value by Rs 60,000. Can she do so?
Yes, now let’s look at how much she can add? She has paid Rs 25,000 for 4 years, i.e. Rs 1,00,000 of regular premium till date. So 25% of Rs 1,00,000 is Rs 25,000 and hence she can top up her policy for Rs 25,000 without having to increase her Sum Assured.
But Amrita wishes to Top Up for Rs 60,000 total. Hence for the remaining amount of Rs 60,000-Rs 25,000= Rs 35,000, the Top Up premium will be a Single Premium and her Sum Assured would increase to approximately 110% of the premium. Hence, her Sum Assured would increase by Rs 38500 which means her total Sum Assured will rise from Rs 2,50,000 to Rs 288500.
What are the basic features of Top Up premium?
- Top-Up Premium can be paid any time during the policy term at irregular intervals besides the basic regular premium and is treated as single premium.
- Top-Up Premium can only be made only during the policy term provided all regular premiums have been duly paid on time.
- At any point of time during the policy term, as long as top-up premium is less than 25% of all regular premiums paid till that date, the top up premium will not be required to have a sum assured.
There are 3 parts of the premium in a ULIP product- mortality, expenses and investment. Mortality is the portion of premium which goes towards protection of the policyholder i.e. death benefit, expenses is your administration and allocation charges while investment is the amount invested in the fund chosen by you.
It is recommended that you choose a plan in which expenses are minimum. Edelweiss Tokio Life Wealth Plus is a plan where there are no allocation or administration charges involved and hence, a larger portion of your premium is invested in the fund. Thus, giving you maximum returns.
However, in Top-Up premium, as long as it is within the 25% of all regular premiums paid till that date, only a small amount of expenses are deducted, usually 2-3%, and the rest is included y the Fund Value as investment, since there is no requirement of subsequent rise in Sum Assured.
Since ULIP is an investment driven product, this is a very important feature where fund value can be enhanced till a certain amount without affecting the Sum Assured. For further rise, a small increase in Sum Assured is definite.