How the Loyalty Addition Benefit Works in ULIPs

Unit-Linked Insurance Plan (ULIP) has emerged as a noteworthy investment instrument over the last few years. It is a unique financial product that allows you to benefit from a life insurance cover and gives you the opportunity to earn profitable returns on investment. Due to its demands, many insurance providers in India now offer different types of ULIPs to attract more customers.

ULIP comes with various advantages and facilities for you. One such benefit is the loyalty addition, which provides you with higher returns. Here, we explain what this benefit is and how it works.

What is loyalty addition in ULIP?

You can consider loyalty addition as an extra benefit that your insurance provider offers for staying with them. If you do not discontinue the ULIP or surrender it, the insurer adds an additional amount to your ULIP corpus. It is a bonus for your loyalty; hence, the name. The loyalty addition features effectively increase the returns on investment in ULIP.

Generally, insurance companies add the loyalty benefit with your ULIP plans returns either after the end of the five-year lock-in period or when the policy matures. This benefit’s primary purpose is to ensure that you stay invested in the ULIP for an extended period. If you know that continuing to pay your premiums on time and for a longer tenure will earn you more, it is more likely that you will stay committed. This is why the insurance company offers loyalty addition during a later stage, ensuring that you remain motivated to invest.

How the benefit works

Insurance providers offer the loyalty benefit either as a percentage of the total premium paid or as a ratio of the ULIP’s fund value. To understand the first type of loyalty addition benefit, read this example:

Imagine that you have a ULIP and pay a premium of INR 1 lakh yearly to keep it. If you continue to pay the annual premium for a specific period, your insurer offers the benefit as a percentage of that amount. Hence, if they pay 2% on the yearly premium, you will get an additional INR 2,000 added to the fund. However, remember that the amount of the loyalty addition benefit does not depend on the ULIP plan’s returns or how the investment fund is performing. The financial market’s performance determines your ULIP fund’s actual return, but not the loyalty addition. The value of loyalty addition is dependent purely on the tenure of the policy.

The easiest thing to understand about the working of this facility is that the longer you stay invested, the higher your loyalty addition benefit will be. For example, if an insurance company offers 1% of the yearly premium as a loyalty addition benefit after the lock-in period, they may increase it to 3% after another five years. You may even get a rise up to 5% after paying the premiums for ten years. The amount varies depending on your insurance provider. Hence, it is smart to find out about an insurer’s loyalty addition benefit before buying the ULIP.

Things to keep in mind

While the loyalty addition benefit is an attractive offer, do not let it become the determining factor while choosing a ULIP. Your main objective is to invest in a policy that historically ensures lucrative returns and offers a significant sum assured at a competitive price. It must also guarantee a respectable life insurance cover along with a simple claim process.

From ULIP tax benefits to high market-linked returns, the policy has many rewards. It is an ideal investment plan to secure your and your family’s financial future. Hence, it is essential that you spend some time searching for the best policy to get maximum benefits.

What do you think?

Written by Michael Curry

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