When you want to grow your wealth for a financially secure future of yourself and your loved ones, your first option would be investment. While many prefer to directly invest in stocks and other options on the stock market, many people opt for other financial instruments for investment purposes. One such instrument is a ULIP insurance. In a ULIP, you get the dual benefits of investment and insurance.
However, to be able to enjoy these benefits, you need to pay the required premiums. At times, many people are unable to pay their premiums on time due to different reasons. If you have invested in a ULIP and are unable to pay the premium due to some reason, what would happen to your plan? Read more to find out.
ULIP insurance is a type of life insurance plan. It offers the dual benefits of investment and insurance under the same policy. You get to invest in equity funds and debt funds. Equity funds have a high-risk factor and offer higher returns. Debt funds have a low-to-medium risk factor and offer medium returns. The plan offers life cover to the family of the policyholder. They receive a death benefit from the insurer in the event of the policyholder’s untimely death.
How do the premiums in ULIPs work?
The premium that you pay towards ULIPs is used for the purpose of investment and insurance. Based on what your requirement is, you can allocate the funds accordingly. If your main emphasis is on investment, you can allocate more money towards the investment aspect with the remaining being used for insurance. If you want to provide your family a better life cover in your absence, you can allocate more towards the insurance aspect. Similarly, you can opt for a balanced allocation of funds to enjoy the best of both benefits.
What are the modes of premium payment?
In ULIPs, you have the option of paying the premium in 2 ways:
- Regular mode
In this mode, you have the option of paying the ULIP premium on an interval basis. This could be a monthly payment, half-yearly payment, and yearly payment. The option you select should match your expenses and budget so that you will not face any problem during the payment.
- Single mode
In this mode, you can make a one-time ULIP premium payment. This option is suitable for those whose net worth is high and can manage a big premium payment without facing financial instability.
What happens if the premium is not paid?
As ULIPs function on the premiums paid towards the policy, the impact of non-payment can happen in either of the two ways:
- When the lock-in period is in place
ULIPs come with a lock-in period of 5 years. You cannot withdraw or access your investment during the lock-in period. Only after the completion of the lock-in period can you access your investment or make partial withdrawals. Discontinuation of the premium payment towards your plan could impact the insurance aspect more. Your insurer will levy penalties which will be deducted from your fund value. Usually, you are given a grace period, which may vary from one insurer to another. If you do not pay the premium during this grace period, your policy could lapse. Similarly, if you do not wish to continue with the policy, whatever returns you have gained from your initial investments would be paid to you. This will happen once the lock-in period ends. This would also mark the termination of your policy.
- When the lock-in period ends
After the lock-in period ends, the sum assured amount will get reduced if you stop paying the premium. Generally, in such cases you get an intimation from your insurer to restart the premium payment. However, if for some reason you are not able to pay or want to surrender your policy, you have the option of doing so. After a certain period, the insurer will pay you the maturity benefits after deducting all the penalties and charges related to your plan.
In order to enjoy the full benefits of your ULIP plan, it is vital to keep the premiums. You can get in touch with your insurer to get a better idea of the different plans and premiums.