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How Do Top-Ups Work In ULIPS?

How Do Top-Ups Work In ULIPS?

ULIP Top ups

Even if you are uninitiated, you must have heard the term ULIP. A ULIP or Unit-Linked Insurance Plan is a mixture of insurance and investment. A small amount of the premium is attributed to secure life insurance and rest is invested just like a mutual fund. You invest through the term of the policy which could be 5, 10 or 15 years, accumulating the units. ULIPs offer options that invest in equity which is apt for an aggressive investor as well as debt suitable for a conservative one, or even a balanced strategy if you want it.

Due to their balanced risk scope, flexibility, multiple tax benefits, and insurance bonus, ULIPs are a very popular investment option. They can easily replace other investments and life insurance policies in your plan if you don’t want to deal with multiple instruments. You can also enhance your ULIP with a top-up.

What is a ULIP top-up?

A top-up premium is a sum that a policyholder can invest into their ULIP, adding to the existing premium payment. One can increase the investment component of a well performing ULIP by paying an extra premium.

A top-up can be done at any point in the policy term till the total number of top-up premiums doesn’t go beyond a specific percentage of your total premium. All companies define the minimum amount for top-ups in their policy documents. The option of top-ups is exclusively available for customers who make timely premium payments. Premium allocation charges can range from 1% to 3%, depending on the policy and insurer. According to norms, every single top-up premium is a single premium contract. It means that the extra amount added to your ULIP should also buy you insurance cover.

Are top-ups available for traditional life insurance policies?

Generally, they aren’t. Traditional life insurance plans have minimum guaranteed returns, which makes them opaque, whereas ULIPs have costs that are unbundled, plus market-linked returns. Hence, top-ups are generally a feature of ULIPs.

What are the charges involved?

  • A premium allocation charge (one-time charge), which is deducted from your premium amount
  • A mortality charge, or charge for granting you a life insurance, which depends on your age and is recurring in nature
  • Fund management charge

If you are 35 while buying your Unit-Linked Insurance Plan, and choose to buy a top-up at the age of 40 years, the mortality charges will be those applicable for 40 years of age and not for 30 years. The minimum amount of sum assured is also determined by the age attained at that time.

Things to remember about top-ups

  • The minimum compulsory holding period for a top-up premium is five years. However, if you surrender your ULIP, you can even withdraw your top-up amount even before your lock-in period is over.
  • Top ups are not permitted in the last five years of your ULIP term, except for a Unit-Linked Pension Plan. For a Unit Linked Pension Plan, the number of top-ups allowed is unlimited.
  • Top-ups are a great option, but should be used wisely. It’s a worthy investment only if your ULIP has shown a good performance consistently.
  • The benefit of ULIPs is that these market-linked instruments are transparent. When you have a windfall gain, you can pump it into your existing Unit Linked Insurance Plan, and it will function as a single-premium policy added to the primary policy, along with the advantage of a lesser premium allocation charge plus zero policy administration charges.


If you have a Unit-Linked Insurance Plan already and are satisfied with the performance and returns, you can very well consider a top-up. It will only boost your investment and potentially give your better returns. If you haven’t invested in a ULIP yet, it’s never too late. Take your pick from the numerous ULIP available in the market and reap the benefits of this unique financial instrument.

Invest 4G

One of the most promising ULIP that you will come across is the Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G Plan. It is a protection and savings-oriented Unit-Linked Insurance Plan that will give you a wide range of options including 7 different fund options, 4 different portfolio strategies, and 2 different death benefit options. Bonus benefits are Loyalty Additions and Wealth Boosters. All of this and more is just a few clicks away!

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Annual Income (In Lacs)


In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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