Bringing together the best of insurance and investment, a ULIP Plan has become worth every penny for an investor. This is because ULIP plans not only offer a life cover for protection but also higher ULIP returns for the growth of every investor.
Investing in ULIPs doesn’t require a lot of time and effort. But understanding its terms and technicalities use up all your energy. Two such terms from the ULIP Policy which need elaboration are: Sum Assured and Fund Value. This is simply because a majority of people often confuse Sum Assured and Fund Value with one another which lead to misconceptions. If you’re one of those people too, then read further to spot the difference between the two:
What is Sum Assured?
When you invest in ULIPs, your insurance company promises a fixed sum to your family, at the time of your death. This promised amount is basically what is labelled as “Sum Assured”. Sum Assured is the assurance amount to your family at the event of your death.
For instance, if your insurance company has promised to pay you a sum of Rs. 1,00,000, then, as promised you’ll get the complete sum at the time of your death.
What is Fund Value?
Investing in a ULIP plan ensures that you get to select from the multiple fund options available under the policy. The types of funds are equity funds, debt funds and balanced funds.
Fund Value is the total of the fund in which investors decide to invest. It can be calculated on a specific day by multiplying the ULIP NAV of each unit on that day by the number of units that are held. Keeping an eye on your fund value is important so check your ULIP performance every day.
Difference between Sum Assured and Fund Value:
Speaking about the difference, there are three major situations in order to spot the difference. Here is how you can execute these two options based on the scenarios:
| DEATH OF THE POLICYHOLDER | SURRENDER OF THE POLICY | MATURITY OF THE POLICY |
| In this case, the sum assured or the fund value, whichever is higher, is paid to the family.If your selected fund is not performing well along with a low fund value, then sum assured will be paid. | If an investor surrenders the policy during the lock-in period, then insurance companies will deduct the charges from the fund value.If an investor surrenders the policy after the lock-in period, then insurance company pays the fund value. | After the end of the policy period, the fund value is paid to every investor. |
Now that you how to spot the difference between sum assured and fund value in a ULIP, take informed decisions before investing in one. Once you invest in a plan, use a ULIP calculator to find out the accurate sum assured and fund value. This will simply give you a clearer picture of what your future ULIP returns will be like.