Life insurance plans with inbuilt savings or investment components are one of the key aspects of a balanced financial plan and help you prepare entirely for planned and unplanned events in life.
A Unit Linked Insurance Plan or ULIP is one such life insurance plan that offers you the benefits of a life cover and market-linked returns under a single plan.
Before buying a ULIP policy, it is essential to understand the terminology related to ULIP insurance, like the fund value in the ULIP plan. Here is a detailed explanation of a ULIP fund value.
What is a ULIP Plan
ULIP is a unique financial offering that provides an investor with the benefits of insurance and investment. The insurance provision of a ULIP plan provides coverage in the event of an unforeseen emergency when the plan is active. On the other hand, the investment provision allows you to benefit from investing in various market-linked securities.
Based on your risk tolerance, you can make these investments through the ULIP fund - equity fund (high risk), debt fund (low risk) and balanced fund (medium risk). Returns on the investment increase with the increase in the risk you take.
Due to its two components, a ULIP policy offers two types of payouts -
Sum assured from the ULIP plan
Fund value of the plan
Different kinds of ULIP plans cater to an investor's different needs, and you can choose a plan most suitable for your present and future requirements.
Sum Assured in ULIP Plan
Under a ULIP plan, the insurance provider gives a minimum assured sum to the nominee or beneficiary of the policyholder in the unfortunate event of the policyholder’s death during the policy’s term.
The policyholder’s nominee and other family members can use these funds to meet their day-to-day expenses and get financial security for their future.
The sum assured amount directly depends on the policy premium. Therefore, the higher the premium, the higher the sum assured. Moreover, this amount is not taxable* under the Income Tax Act.
Fund Value in ULIP Plan
A ULIP policy has a lock-in period of 5 years. When buying a ULIP plan, the policyholder invests funds based on his risk-taking ability and the prevailing market conditions.
The fund value of a ULIP plan is the total monetary value of the units the policyholder has.
The fund value of a ULIP plan shows how much an investment has grown or reduced in value over time. To calculate the fund value, you must first understand the Net Asset Value (NAV).
Understanding the Net Asset Value
On investing in a ULIP policy, you will get a certain number of units of the fund you choose based on how much money you invest. The Net Asset Value is the price of every unit in the fund. The NAV value changes every day due to the fluctuations in the price of securities which are a part of the fund’s investment.
The formula to calculate the NAV is:
NAV = (Assets-Liabilities) / Number of outstanding units
In this formula:
Assets = Total value of investments and assets in a fund
Liabilities = Due expenses
How to Calculate the Fund Value in ULIP
You can calculate the fund value of your investment on a particular day by using the NAV on that day.
The formula to calculate the Fund Value is:
Fund Value = NAV (per unit) x Number of units in the fund
For example, if there are 1,000 units in your portfolio and the NAV for each unit today is ₹ 20, the Fund Value for your ULIP plan today is:
1,000 * 20 = ₹ 20,000
Different Cases of Payouts of Unit Linked Insurance Plan
A ULIP payout can be made under the following 3 situations:
Policyholder’s demise during the policy term: In the event of the policyholder’s death during the policy term, the beneficiary or nominee receives the sum assured or the fund value, whichever is higher. Since the fund value of a ULIP plan keeps fluctuating on a daily basis, the sum assured is paid to the beneficiary if the fund is underperforming and the sum assured is higher.
Upon policy maturity: If the policyholder survives the policy term, the insurance provider pays the fund value at the time of the plan’s maturity to him. The fund value here is the total investment value of the policy.
Upon surrender of policy: A ULIP plan has a 5-year lock-in period. In case of an emergency, if the policyholder wants to surrender the plan before its maturity, the insurance provider pays the surrender value of the plan, post deduction of the applicable charges.
Factors that Affect the Fund Value
As the fund value depends on the NAV of the fund on a particular day, all the factors that affect the NAV also affect the fund value. These factors include:
The present market value of the investment.
The market value of the policyholder’s current assets.
The market value of the policyholder’s current liabilities and provisions.
The number of units in the portfolio on the day the fund value is calculated.
To secure your future with the dual features of investment and insurance, invest in a ULIP plan by Tata AIA. With a Tata AIA policy, you can choose a ULIP plan that best suits your requirements, such as wealth creation, health benefits, post-retirement benefits, and children’s education.
Our range of ULIPs is designed to help you achieve your financial goals through flexible premium payment terms and policy terms. Enjoy the benefits of market-linked returns coupled with a life cover with our ULIP plans, like Tata AIA Life Insurance Fortune Pro and Tata AIA Life Insurance Wealth Pro.
The fund value of a ULIP plan depends upon the market movements. It is the total value of your investments in the ULIP plan. By looking at the fund value, you can understand the performance of your investment and calculate its growth or decline.