Top-Up Premium in ULIP

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Top-Up Premium in ULIP
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• Top up premium in ULIP Unit Linked Insurance
  Plan is the amount that a policy owner invests
  in a ULIP over and above the regular premium. The
  primary aim is to enjoy the benefit of lower
  Premium Allocation Charge (PAC) which may be as
  low as 1 as compared with those levied on the
  regular premium which currently is as high as 25
  in the 1st year and reduces to 3-5 subsequently.
  However, PAC will have an upper cap of 4 from
  September 1, 2010 as per the new guidelines
  issued by IRDA (Indian Regulatory and Development
  Authority) on June 28, 2010.
• This advantage comes from the fact that top ups
  may be made any time unlike regular premiums
  which have to be paid at fixed intervals. For
  example, the recent recession, when the markets
  had fallen nearly 70 percent, was a good time to
  invest in the stock market and anybody sitting on
  a surplus could do so through top ups.

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• Top ups also enjoy tax benefits under section 80
  C of the Income Tax Act giving exemption up to a
  maximum of Rs. 100,000 p.a. invested in life
  insurance policies. This is another allure of top
  ups.
• However, the total sum of top up investment is
  usually permissible till 25 of the regular
  premium paid up to the time of investing. The
  minimum amount required may vary for each
  insurance company, but is generally Rs 2000.
  Also, most insurance companies allow the option
  of top ups only after a few payments of the
  regular premium have been made and no payments
  are pending or have been defaulted.
• Under current practices the entire top up money
  is used for investment purpose without any part
  allocation towards mortality cover, but this is
  set to change as per new IRDA guidelines. Top up
  premiums will lose some of their sheen after the
  new directives on insurance policy by IRDA come
  into force from Sept. 1, 2010. All top up
  premiums will be treated as single premium having
  a minimum insurance cover of 1.25 times for
  policy holders below the age of 45 years and 1.1
  times for those above 45 years except for pension
  plan/ annuity products.

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• Another change is that the lock in period on ULIP
  as well as top ups has been increased to 5 years
  from the current lock in of 3 years. This
  limitation is beneficial to the insured because
  it prevents withdrawal of funds too early which
  diminishes the benefit of compounding. On the
  other hand this limitation can be a constraint in
  case of pressing requirements. When a life
  insurance policy holder has surplus cash,
  investing that money through top up premium is a
  good idea to reap the benefits of long term
  investment at comparatively lower charges. The
  biggest advantage of top-ups is that one can
  deploy those funds in the market at the time one
  feels will be most profitable.
• So far top up premiums have been a great selling
  point for ULIPs. With the introduction of new
  guidelines, the insurance sector will become more
  transparent and accountable to the insured, which
  in effect will encourage more people to opt for
  ULIP products.

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• There are many life insurance companies in India.
  These life insurance companies provide different
  types of Life Insurance policies. For financial
  investment planning most people prefer ULIP and
  the ULIP plans are better because it combines
  regular insurance policy with child education,
  pension plan other benefits.
• Article Source http//EzineArticles.com/4916204

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