Sum assured in ULIP

The sum assured in ULIP refers to the fixed life cover amount chosen at the start of the policy. It is the minimum amount the insurer pays to the nominee if the policyholder passes away during the policy term. This amount is defined from the beginning and works separately from the investment fund value that changes with market movements. A unit-linked insurance plan combines life cover with market-linked investment. Part of the premium supports insurance protection, while the remaining part is invested in funds such as equity or debt instruments, based on the policyholder’s choice.

What is sum assured in ULIP?

Understanding what is sum assured in ULIP is important. It is the assured death benefit amount under the plan. If the policyholder dies during the policy term, the nominee receives this amount as financial support. As ULIPs include both insurance and investment elements, it may seem confusing. In a term insurance plan, the death benefit is only the fixed cover amount. In ULIPs, the payout may depend on both the sum assured and the fund value.

In many ULIPs, the nominee may receive either the sum assured or the fund value, depending on which is higher. Some plans may also offer the sum assured plus fund value, based on plan structure. This makes ULIPs different from basic life cover plans.

How does sum assured in ULIP work?

After understanding sum assured in ULIP meaning, let's understand how it works.
 

The ULIP sum assured works as a guaranteed life cover amount selected when buying the policy. It does not change with market ups and downs. The insurer commits to paying this amount if death occurs during the policy term. The fund value, however, depends on investment performance. So, the death benefit payout may vary depending on plan type.
 

Some ULIP plans offer options such as:
 

• Paying only the sum assured

• Paying the higher of the sum assured or the fund value

• Paying sum assured plus fund value
   

This structure ensures that the life cover component remains defined even when investments fluctuate.

Difference between sum assured, maturity benefit, and fund value in ULIP

The following table highlights the difference between sum assured, maturity benefit and fund value in ULIP:
 

Tax benefits on sum assured in ULIP

The tax benefits on the sum assured in ULIPs are as follows:
 

• Premium deduction under Section 80C
  Premiums paid for ULIPs may qualify for tax* deduction up to ₹1.5 lakh under Section 80C, subject to policy conditions and limits set under tax laws.

• Death benefit exemption under Section 10(10D)
  Death benefit payouts, including the sum assured received by the nominee, are generally exempt from tax* under Section 10(10D), if eligibility rules are met.

• Capital gains for ULIPs
  ULIP maturity proceeds may be tax-free* in many cases, but rules depend on premium thresholds and amendments under current income tax provisions.

How do you get paid in case of a ULIP?

Here is how you get paid in case of a ULIP.
 

• Maturity payout option
  At the end of the policy term, the policyholder receives the fund value based on accumulated units and market performance, subject to applicable charges and conditions.

• Partial withdrawal facility
  After completion of five years, ULIPs usually allow partial withdrawals for specific needs, while the remaining investment continues under the policy.

• Death benefit
  If the policyholder’s death occurs during the policy term, the nominee receives either the sum assured or the fund value, or sometimes both, depending on the policy structure.

• Regular payout choices
  Some ULIPs offer structured payout options where maturity proceeds may be taken as a lump sum, staggered withdrawals, or a combination of both.

• Fund switching feature
  Policyholders may switch between equity, debt, or balanced funds during the policy term, which can influence future fund value and maturity outcomes.

Points to know before investing in a ULIP

Before investing in ULIPs, consider the following:
 

• Sum assured component
  The sum assured in ULIP acts as the minimum guaranteed life cover payable to the nominee during the policy term, irrespective of market-linked fund performance.

• Lock-in period requirement
  ULIPs come with a mandatory five-year lock-in period. Withdrawals are not permitted during this time except under specified policy rules.

• Grace period for premiums
  Premium payments include a grace period of 15 days for the monthly mode and 30 days for other modes, helping prevent policy lapse.

• Revival of discontinued policies
  If a policy discontinues after the lock-in period, revival may be allowed within a defined timeline, subject to insurer guidelines.

• Partial withdrawal rules
  Withdrawals are allowed only after five policy years, and conditions apply regarding limits, charges, and impact on future benefits.

• Child ULIP restrictions
  In child-oriented ULIPs, withdrawals may be restricted until the child reaches adulthood, ensuring the intended long-term goal remains protected.

• Sum at risk in ULIP
  The sum at risk in ULIP refers to the difference between the sum assured and the fund value. This represents the insurer’s actual risk coverage portion.

Conclusion

The sum assured is an essential part of a ULIP because it provides the defined life cover amount during the policy term. Though the value of the fund indicates the performance of the investments, the sum assured provides a minimum payout to the nominees in the event of death. It is important to note the distinction between the maturity value, fund value, and life cover in order to choose a ULIP that meets financial planning requirements. Terms and conditions of policies, fees, and tax* regulations must be examined carefully.