What is Insurance?
Insurance is a form of risk management, primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
Who is an Insurer & Insured?
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy.
What is an Insurance Policy?
Insurance is a form of risk management, primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.
Who is an Insurer & Insured?
An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy.
What is an Insurance Policy?
The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.
What is an Insurance Premium?
The amount to be charged for a certain amount of insurance coverage is called the premium. An insurance premium is usually collected in monthly, semi-yearly, or yearly payments, depending on the type of policy. Policyholders also often have the option of combining their payments with fees for other services, or taking out several types of policies with one company to lower the overall costs. For example, buying both car and renter's insurance from the same insurance company may give the buyer a discount on both.
What is Top-Up Premium?
Top-Up, as the name suggests, is the premium over and above the regular premium that you pay for your life insurance or any other policy. As an example, if you pay an annual premium of Rs. 50,000/- for your policy and suddenly you have some extra cash at your disposal which you want to invest, then you have a choice to invest the extra amount in your existing scheme by way of top ups.
Benefits of paying Top-Up Premium
1. The biggest benefit of paying a top up premium is that the charges for top-up premium are far less than the charges for regular premium. In fact you should always go for the minimum premium payable. e.g. if you want to pay an annual premium of 25,000/-and minimum premium payable is Rs 10,000/- , than you pay regular premium of 10,000 & top-up premium of 15,000/-. This will save you a lot of additional charges.
2. For the extra cash that you have at your disposal, you don't have to go for a separate policy or a scheme and make your policy portfolio management more complex. Moreover, this extra cash may not be available as a regular stream and may only be available as one time cash (a festival bonus, may be:)). Just use your existing policy to top it up.
Impact of Top up Premium on Sum Assured
1. Before buying any ULIPs, read the information brochure carefully or ask your agent about the Sum Assured part when Top up Premium are paid.
2. Top up premium can be paid to only certain extent or limit in some ULIPs. If it exceeds that limit, sum assured in the policy also increases. So, mortality charges also increases. These additional charges are deducted from premium paid which reduces actual investment amount. Thus, in effect, you nullify the first advantage under the Benefits Section.
Regular Premium Vs Top Up Premium
1. One can pay top up premium anytime during tenure of ULIP or it depends on policy to policy. Just one must ensure that top up premium should not exceed 25% of total premium paid for that year. Minimum top up premium amount is mentioned in policy document.
What is an Insurance Premium?
The amount to be charged for a certain amount of insurance coverage is called the premium. An insurance premium is usually collected in monthly, semi-yearly, or yearly payments, depending on the type of policy. Policyholders also often have the option of combining their payments with fees for other services, or taking out several types of policies with one company to lower the overall costs. For example, buying both car and renter's insurance from the same insurance company may give the buyer a discount on both.
What is Top-Up Premium?
Top-Up, as the name suggests, is the premium over and above the regular premium that you pay for your life insurance or any other policy. As an example, if you pay an annual premium of Rs. 50,000/- for your policy and suddenly you have some extra cash at your disposal which you want to invest, then you have a choice to invest the extra amount in your existing scheme by way of top ups.
Benefits of paying Top-Up Premium
1. The biggest benefit of paying a top up premium is that the charges for top-up premium are far less than the charges for regular premium. In fact you should always go for the minimum premium payable. e.g. if you want to pay an annual premium of 25,000/-and minimum premium payable is Rs 10,000/- , than you pay regular premium of 10,000 & top-up premium of 15,000/-. This will save you a lot of additional charges.
2. For the extra cash that you have at your disposal, you don't have to go for a separate policy or a scheme and make your policy portfolio management more complex. Moreover, this extra cash may not be available as a regular stream and may only be available as one time cash (a festival bonus, may be:)). Just use your existing policy to top it up.
Impact of Top up Premium on Sum Assured
1. Before buying any ULIPs, read the information brochure carefully or ask your agent about the Sum Assured part when Top up Premium are paid.
2. Top up premium can be paid to only certain extent or limit in some ULIPs. If it exceeds that limit, sum assured in the policy also increases. So, mortality charges also increases. These additional charges are deducted from premium paid which reduces actual investment amount. Thus, in effect, you nullify the first advantage under the Benefits Section.
Regular Premium Vs Top Up Premium
1. One can pay top up premium anytime during tenure of ULIP or it depends on policy to policy. Just one must ensure that top up premium should not exceed 25% of total premium paid for that year. Minimum top up premium amount is mentioned in policy document.
2. If your regular premium is due and which you have not paid and you go for paying top up premium then, automatically these funds are directed as regular premium amount. If top up premium exceeds 25% as above, the sum assured amount increases. This increase is at certain percentage of top up as decided by insurance company.
Other key points
1. Partial withdrawal of top up premium is also possible after lock in period of 3 years. So you can avail benefit of fluctuations in the market by top up premium and then withdrawing the same if market seems down.
2. Top-up premiums enjoy the same tax benefits as regular policies. Since these are life insurance products, these come under the exempt-exempt-exempt regime and, hence, are tax-free.
Other key points
1. Partial withdrawal of top up premium is also possible after lock in period of 3 years. So you can avail benefit of fluctuations in the market by top up premium and then withdrawing the same if market seems down.
2. Top-up premiums enjoy the same tax benefits as regular policies. Since these are life insurance products, these come under the exempt-exempt-exempt regime and, hence, are tax-free.
Top it up, it has lost of positives !! :)
Cheers
Manoj Arora
Good article. Certainly helps me in deciding on topping my ULIP premium next year.
ReplyDeleteCheers...
Romesh
Cheers Romesh for topping up !!
Delete