Top up premium in ULIP is the amount that the plan owner spends in a ULIP over and above the normal premium. The key purpose is to benefit from the lower Premium Allocation Cost that may be as little as 1% as opposed to individuals levied about the regular top quality which presently is as high as 25% in the 1st year and decreases to 3-5% consequently.
This benefits of UILPs comes from the fact that top ups might be made whenever unlike normal rates that have to be paid out at fixed durations. For instance, the current economic depression, when the market segments had decreased almost 70 %, was a great time to invest in trading stocks and also everyone sitting on a extra could do so through top ups.
Top ups also relish tax advantages beneath section 80 C of the Income Tax Act giving exemption up to a utmost of Rs. 100,000 p.a. committed to life insurance policies.
Nevertheless, the entire amount of top up expense is generally allowable till 25% of the regular premium paid up to the time of trading. The minimal quantity required will vary for each insurance provider, but is usually Rs 2000. Also, many insurance companies allow the option of top ups only after a few payments of the normal premium have been made with no payments are impending or have been defaulted.
Under current practices the whole top up money is used for investment purpose without any part percentage towards mortality cover, but this is set to alter according to new IRDA guidelines. Top up premiums will lose a few of their sheen after the new directives on insurance policy by IRDA come into force through.
So far top up premiums happen to be an excellent selling point for ULIP. With the intro of recent guidelines, the insurance coverage sector will become more transparent and also accountable to the insured, which usually in effect will motivate more and more people to opt for ulip investment.