Unit Linked Insurance Plans (ULIPs) are a popular financial instrument in India, offering a combination of investment and life insurance. Many policyholders opt for ULIPs to build wealth while ensuring financial security for their families. However, it is essential to understand what happens to ULIPs in case of policyholder death. The death cover in ULIPs ensures that the nominee or legal heir receives financial support in the unfortunate event of the policyholder’s passing. This article explores the key aspects of ULIPs, their death cover provisions, payout processes, the nominee’s role, and the claim settlement procedure to help policyholders and their families make informed decisions.
Understanding ULIPs and death covers
A ULIP is a dual-purpose financial product that combines insurance coverage with market-linked investment returns. The death cover in ULIPs ensures that the family of the policyholder is financially secure in case of an untimely demise. Here’s a breakdown of its key aspects:
Life insurance component:
ULIPs provide a
life insurance cover, ensuring that the nominee receives the sum assured or the fund value, whichever is higher.
Investment component:
A portion of the premium is invested in equity, debt, or hybrid funds to generate long-term returns.
Death covers:
If the policyholder passes away, the nominee is entitled to a payout that typically includes the sum assured and/or the fund value.
Premium waiver benefit:
In some ULIPs, future premiums are waived after the policyholder’s death, and the policy continues to generate investment returns until maturity.
Additional riders:
Some policies offer riders such as accidental death cover and critical illness cover to enhance financial security.
How does a ULIP payout work after policyholder’s death?
When a ULIP policyholder passes away, the insurance provider ensures that the nominee or beneficiary receives the promised benefits. The payout structure depends on the policy terms and conditions. The following outlines how ULIP payouts work:
Sum assured or fund value:
The insurer provides the nominee with either the sum assured or the fund value, whichever is higher.
Death covers with premium waiver:
In some plans, the nominee receives the death cover while the fund continues to remain invested until maturity.
Lump sum or periodic payouts:
Some ULIPs offer flexible payout options, where the nominee can opt for a lump sum or staggered payments over a period of time.
Rider benefits:
If the policyholder had opted for additional riders, the payout may include benefits from accidental death or critical illness riders.
Tax-free benefits:
The death covers under ULIPs are usually tax-free under Section 10(10D) of the Income Tax Act.
Role of nominee in ULIP death claim process
The nominee plays a crucial role in ensuring that the death benefits are claimed and utilised effectively. Here are the responsibilities of a nominee:
Initiating the claim process:
The nominee must inform the insurer about the policyholder’s demise and submit the required documents.
Providing necessary documents:
Key documents include the death certificate, policy details, and identity proof.
Choosing the payout mode:
The nominee can decide whether to take a lump sum payment or staggered payouts based on financial needs.
Managing the received funds:
Proper financial planning ensures that the payout is used wisely to cover expenses, liabilities, and future financial goals.
Following up on claim status:
The nominee should regularly communicate with the insurer to ensure a smooth and timely claim settlement.
Difference between sum assured and fund value in ULIPs
Understanding the difference between sum assured and fund value is essential for policyholders and their nominees. Here is how they differ:
Sum assured:
This is the minimum guaranteed amount payable to the nominee upon the policyholder’s demise.
Fund value:
This is the market-linked investment value of the ULIP, which fluctuates based on the performance of the underlying funds.
Higher of the two:
In most ULIPs, the nominee receives either the sum assured or the fund value, whichever is higher.
Additional benefits:
Some ULIPs provide both the sum assured and fund value, ensuring enhanced financial protection.
Impact of market performance:
While the sum assured is fixed, the fund value depends on market conditions and investment performance.
Steps to claim ULIP death covers
Filing a ULIP death claim involves a few essential steps. Here’s a structured approach:
Inform the insurer:
Notify the insurance company as soon as possible about the policyholder’s death.
Gather required documents:
Documents typically include the death certificate, policy document, nominee’s identity proof, and bank details.
Submit the claim form:
Fill and submit the insurer’s death claim form with all necessary details.
Verification process:
The insurer will review and verify the documents before processing the claim.
Claim settlement:
Once verified, the insurer disburses the death benefit to the nominee.
Conclusion
ULIPs are an effective financial tool that provides both investment benefits and life insurance protection. Understanding what happens to ULIPs in case of policyholder death is crucial for ensuring a smooth claim process and financial security for the nominee. By being aware of the payout mechanisms, claim procedures, and the nominee’s role, one can make the most of ULIP benefits and safeguard their family’s financial future.
