What Is Sum Assured in a ULIP?


Purchasing a Unit-Linked Insurance Plan (ULIP) brings many benefits that allow you to secure your and your family’s future. ULIPs are life insurance policies, but they also allow you to create a significant fortune through investment. When you invest in the policy, your insurance provider deducts the mandatory ULIP charges and invests the rest of the capital in equity, debt, or a combination of multiple funds, depending on your financial goals.

If you are thinking “why should I invest in ULIP now,” the answer is that the policy has many plus points. It offers multiple payouts, such as the sum assured and maturity benefit. Here, we explain what the sum assured is and how to calculate it.

What is the sum assured?

Among many ULIP benefits, the sum assured is a guaranteed return. While buying the ULIP, you and the insurance company agree upon an amount that they will pay to your nominees if an unfortunate incident leads to your absence. This amount is called the sum assured. This value depends on the premium that you pay. If you want your dependents to receive a substantial sum assured, you need to pay a high premium.

An example can explain this better. Assume that Abhishek invests in a ULIP with a tenure of 20 years and opts for a sum assured of INR 10 lakh. Here, the insurer charges a yearly premium of INR 50,000. The insurance provider deducts a small part under various charges and invests the rest in ULIP funds, as per Abhishek’s instructions.

Here is a list of situations that explains how much payout Abhishek’s family can expect.

  1. Scenario one

ULIPs have a five-year lock-in period, during which time the policyholder cannot withdraw any funds. If an unavoidable event results in Abhishek’s demise during the first five years, the insurance company will pay only the sum assured to his nominees. Hence, his family will get INR 10 lakh in this case.

  1. Scenario two

After the lock-in period, policyholders are eligible to partially withdraw from the returns generated via the investment made in ULIP funds. The amount accumulated is called the fund value. If something happens to the policyholder between five to ten years after buying the ULIP, the nominees get either the fund value or the sum assured. It depends on which amount is higher.

Suppose Abhishek dies during the seventh year of the ULIP, and the insurer determines that his ULIP fund value is INR 8 lakh, then they will pay INR 10 lakh as the sum assured to his nominees.

However, if the policy’s fund value is more than INR 10 lakh, the insurer will pay them the amount accrued in the fund.

  1. Scenario three

One of the most significant ULIP benefits is that insurance companies pay both the sum assured and the fund value to the nominees if something unfortunate happens to the policyholder after 10 years since policy initiation. So, if Abhishek passes away 11 years after buying the policy when the fund value is INR 12 lakh, the insurer will pay his family a total of INR 22 lakh, which includes the sum assured of INR 10 lakh and the fund value of INR 12 lakh.

  1. Scenario four

The sum assured is the death benefit in ULIP, and the insurer pays it if the insured dies during the policy tenure. If the policyholder outlives the period, he or she only receives the fund value. Hence, if Abhishek survives for 20 years after buying the ULIP, the insurance company will not pay him the sum assured. Instead, he will receive his entire fund value.

Now that you have understood the sum assured in ULIP, make a wise investment decision without any delay. Find out about the policies offered by various insurers along with the applicable ULIP chargesand invest smartly.


Please enter your comment!
Please enter your name here