Top - up Premium In Ulip

Top - up Premium In Ulip

Top up premium in ULIP [Unit Linked Insurance Plan] is the amount that a policy owner invests in a ULIP over and large the regular premium. The primary aim is to enjoy the benefit of lower Premium Portion 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 sizable 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 halfway 70 percent, was a good time to invest in the stock market and anybody sitting on a unnecessary could do so through top ups.
Top ups also enjoy tax benefits below section 80 C of the Income Tax Act giving laissez faire up to a maximum of Rs. 100, 000 p. a. invested in life insurance policies. This is extra allure of top ups.
However, the total sum of top up investment is ofttimes 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 recurrently Rs 2000. Also, most insurance companies avow 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 allowance towards dying cover, but this is set to nickels 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 beneath the age of 45 years and 1. 1 times for those main 45 years erase for pension plan / annuity products.
Another change is that the join in period on ULIP as well as top ups has been larger to 5 years from the routine assemble in of 3 years. This bridle is beneficial to the insured over it prevents slump of kitty 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 chance 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 chrgeable to the insured, which in effect will galvanize more people to nail down for ULIP products.