Ever wondered how you can grow your savings while ensuring the financial security of your loved ones? Unit Linked Insurance Plans (ULIPs) offer you the opportunity to do just that. In a ULIP scheme, you can invest your money in various financial instruments like equity funds, debt funds, or a combination of both, while also enjoying life insurance coverage. But what exactly are loyalty additions and bonus units in a ULIP?
How ULIPs Work?
Before you learn about the loyalty additions, you must quickly understand how a ULIP plan functions. When you buy a ULIP policy, you pay a premium which is then used to invest in different funds based on your risk tolerance. You can choose between equity funds for higher returns with higher risk, debt funds for stable returns with lower risk, or a combination of both for a balanced approach. The ULIPs allow you to switch between funds periodically based on market movements and your financial goals.
At maturity, which is the end of the policy term, the insurer pays you the accumulated fund value. This amount can be calculated using an online ULIP plan calculator, giving you an estimate before purchasing the plan. The maturity amount can be received either as a lump sum or in instalments. In certain cases, loyalty additions may also be added to enhance the benefits for policyholders.
Understanding Loyalty Additions
Now that you know the ULIP meaning and how it works, you must learn about loyalty additions. Loyalty additions are an additional sum of money that insurance providers offer policyholders as an incentive for staying invested in their ULIP policies. These additions are calculated based on either a percentage of the fund value or as a proportion of the premium paid.
It is important to note that loyalty additions are not dependent on the performance of your investments or insurance portfolio. The percentage is predetermined by the insurance provider and is influenced by factors such as premium payments, policy duration, and intervals between guaranteed loyalty increments.
Benefits and Factors Influencing Loyalty Additions
While loyalty additions may seem appealing, they should not be the sole criterion for evaluating the value of a ULIP policy. Here are some benefits and factors to consider when assessing loyalty additions:
1. Encourages Long-term Commitment: Loyalty additions serve as an incentive for policyholders to continue their ULIP policies without early termination. They encourage regular premium payments and promote overall policy discipline.
2. Boosts Overall Returns: Since loyalty additions are calculated based on a percentage of the premium paid or fund value, they have the potential to enhance your overall returns at maturity.
3. Varies Across Insurers: Different insurance providers have their policies when it comes to loyalty additions. Some may offer them after a certain lock-in period, while others provide them only at maturity. It is important to review each insurer’s terms and conditions before making a decision.
4. Factors Influencing Loyalty Additions: The frequency and duration of premium payments, premium size, policy duration, and intervals between guaranteed loyalty increments all play a role in determining the amount of loyalty addition you receive.
5. Balancing Other Factors: While loyalty additions can add value to your ULIP plan, it is crucial to consider other critical factors such as cover quantity, premiums, fund performance, claim procedure, and your overall financial goals before making a decision.
Simplifying Loyalty Additions
If you are planning for your child’s higher education, which is 15 years away, a ULIP can serve as a dual-purpose tool, providing life cover while growing your investment. The loyalty additions you receive can act as an additional boost towards accumulating the necessary funds for your child’s education.
Considering loyalty additions in terms of interest earned on a fixed deposit can make it easier to understand. Just like how a bank may offer an additional interest rate for long-term deposits, insurance companies provide loyalty additions for policyholders who stay invested in their ULIP policies for an extended period.
Conclusion
The ULIPs offer a unique combination of investment and insurance benefits, with loyalty additions being one of the factors that can enhance the policyholder experience. While loyalty additions provide incentives to stay invested and boost overall returns, they should not be the sole determining factor when evaluating a ULIP plan’s value. You must consider other crucial aspects such as cover quantity, premiums, fund performance, and claim procedures to make an informed decision about your financial future.
As you plan for your financial goals, take into account how ULIPs can align with your objectives and provide security for your loved ones. Explore different ULIP schemes available in the market to find a plan that suits your needs and risk tolerance. They have the potential to serve as powerful tools in building a financially secure future for yourself and your loved ones. So, take the time to explore ULIP schemes and understand how they can align with your unique financial needs.
Also Read: Building Loyalty with Rewards: How Different Industries Do It Today
