Top-up Premium in ULIP Explained

The rising popularity of Unit-Linked Insurance Plans (ULIPs) is due to their many benefits that offer you financial security. Buying a ULIP plan meaning is investing your hard-earned money to protect your loved ones and build substantial wealth. When first investing in a ULIP, you have the choice to decide how to allocate your capital among equity and debt funds, depending on your goals. 

Among the various benefits of ULIPs, the one that many do not know about is the top-up premium option. Once your ULIP is active, you can enhance your potential returns with a top-up premium.

Here, we explain how this feature works and its benefits.

What is a top-up premium?

Now that you know what ULIP is, let us look at what top-up premium means. In this facility, the insurance provider allows you to invest more money into your existing ULIP, ensuring that you can generate more profit. This added amount is a top-up premium, as you are paying it over your basic premium. You can pay the top-up premium only if you have paid all the regular premiums due until that point. It is possible to pay the top-up premium at any point during the ULIP tenure. This is a promising feature, as you can utilize your surplus income to generate more returns through ULIPs. 

The best thing about top-up premiums is that you do not have to pay them regularly. You can invest the extra money at your convenience and requirements. Top-up premiums are not mandatory payments either, which means you do not have to pay them unless you feel the need. However, this amount cannot be more than a specific percentage of your regular premium. The limit varies depending on the insurers. Hence, you must ask your insurance provider about the top-up premium before buying a ULIP.

It would help if you also found out about the fund management and mortality charges in ULIP before investing. Insurance companies charge these fees with top-up premiums similarly, as you have to pay them when purchasing your ULIP. These charges may vary depending on your policy and the insurer. However, the one thing you must know about the mortality charges in ULIP is that the insurer decides it based on your age at the time of paying the top-up premium. For instance, if you bought a ULIP at the age of 25 and pay a top-up premium at the age of 30, the insurance provider will determine the mortality fee based on your current age.   

Before you pay top-up premiums to enhance your ULIP returns, it is essential that you first learn how they can help you in increasing your returns. Here are a few of its benefits: 

  1. Facility to pay online

Most insurance providers allow you to pay the top-up premium online through their websites. Paying it online will enable you to invest the surplus amount whenever you want without having to visit a branch office. Before purchasing a ULIP, ensure to find out if your insurance provider lets you make the payment digitally.

  • Option to pay the premium at any time 

Insurers permit you to pay a top-up premium at any point during the ULIP tenure. Hence, you have to wait for the right moment to invest the extra amount to ensure higher returns. Keep an eye on your ULIP fund to stay updated about its performance and pay the top-up premium when the fund performs well. 

  1. Opportunity to avail of tax benefits

Section 80C of the Income Tax Act, 1961 allows you a tax deduction of up to INR 1.5 lakh annually on the ULIP premium paid. This benefit also applies to the top-up premium.

With the top-up premium offering, your ULIP investment plan offers substantial returns. However, remember these plus points while investing to ensure that the additional payment does not go to waste. 

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Written by Paul Watson

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