Top up premium in ULIP is the sum that a policy owner spends in the ULIP in addition to the standard premium. The main goal is to benefit from the lower Premium Allocation Charge which may be as low as 1% as opposed to individuals levied on the normal top quality which often presently is as high as 25% inside the 1st year and also decreases to 3-5% consequently. Nonetheless, PAC will have an upper cap of 4% from Sept 1, 2010 according to the new guidelines issued by IRDA on June 28, 2010.
This benefits of UILPs arises from the fact that top ups may be made any time unlike normal rates which have to be paid at fixed intervals. For instance, the current economic depression, when the markets had decreased almost 70 %, was a good time to spend money on trading stocks and also anybody sitting on a extra could do so through top ups.
Top ups also relish tax benefits below area 80 C of the Income Tax Act providing exemption up to a maximum of Rs. 100,000 p.a. committed to life insurance policies.
Nevertheless, the entire sum of top up investment is generally allowable till 25% with the normal premium paid up to the period of investing. The minimum amount required may vary for every insurance company, however is usually Rs 2000. Also, most insurance providers permit the option of top ups simply after a couple of obligations of the normal premium happen to be made with no obligations are pending or happen to be defaulted.
Beneath existing practices the entire top up cash is employed for investment purpose without the part percentage towards mortality cover, but that is set to alter according to new IRDA rules. Top up rates will miss a few of their sheen after the new directives on insurance plan by IRDA come into force from Sept. 1, 2010.
So far top up premiums happen to be a great selling point for ULIPs. With the introduction of new guidelines, the insurance field will become more transparent and also responsible to the insured, which usually in effect will motivate more people to opt for ulip investment.
