Why Avail the Top-Up Facility in ULIP?


While investing in any financial instrument, most investors would want to earn good returns in the end. So, in case of Unit-Linked Insurance Plans, how do you increase the value of your investment? You can do this with a top-up facility available in ULIP, which offers lucrative perks. Keep reading to learn what is a top-up facility, its working, and benefits that you can avail.

What Is Top-Up Facility in ULIP?

In Unit-Linked Insurance Plan, you can avail a top-up premium option where you pay an additional amount over and above the existing premium. Such a facility helps in case you want your investment to grow or want to increase the ULIP insurance component. This additional sum paid over the basic premium amount should not exceed the set percentage of the total premiums paid per year.

Your insurance provider shall have a minimum top-up premium margin mentioned in the ULIP insurance documents. But the good part about this facility is that you can make this payment anytime during the policy term depending on your financial condition. But to enjoy the ULIP benefits of a top-up premium, you must pay your regular premiums on time.

How Does Top-Up Facility Work?

Apart from the basic premium amount that you pay towards your ULIP, a top-up premium is an extra sum that is treated as a single premium. Thus, the additional money invested in your ULIP policy shall secure insurance coverage and increase your sum assured amount. But in case you do not want the life cover to increase, then you can only pay 25% of your regular premiums towards the investment fund.

So, let’s understand how a top-up premium facility works with an example:

You are paying an annual premium of INR 30,000 towards ULIP for 20 years. The sum assured of your plan is INR 2,50,000. After making regular premium payments for 4 years, you want to use the top-up facility with an additional sum of INR 50,000. But you don’t want an increased sum assured. So, 25% of INR 30,000 paid for 4 years is INR 30,000. This is the amount you can top-up to the ULIP policy without increasing the sum assured.

In case you want the life cover to increase, it is 110% of the premium for policyholders above 45 years and 125% for those below the age of 45 years.

Benefits of Top-Up Facility

Here are some key benefits of availing the top-up premium option in your ULIP policy:

  • Allows Your Investment Component to Grow

By paying an extra amount, you can increase your returns from the ULIP investment. A total of 25% of your premium can be additionally invested in your policy, allowing the fund value to grow.

  • Hassle-Free Facility

If you have been making timely premium payments, you can take advantage of this facility any time during the policy tenure. You only need to make sure the amount doesn’t exceed the fixed percentage of the total premium.

  • Offers Increased Sum Assured

It is possible for your responsibilities to increase since the last time you bought the ULIP policy. Hence, you can increase the life cover to offer extensive protection for your loved ones with a top-up premium.

  • Avail Tax Benefits

You can enjoy ULIP tax benefits for top-up premiums as well. Just like regular premiums, you can claim the additional amount as a deduction under Section 80C of the Income Tax Act. So, along with other perks, you can save on taxes at the same time.

After going through the advantages of a top-up premium facility, you can now understand how beneficial this feature is. Unlike traditional insurance policies, ULIP enables you to increase your sum assured and the investment component. Hence, you can secure your insurance requirements while managing the market-linked returns.