Sum Assured Meaning in a ULIP Plan

Sum Assured Meaning in a ULIP Plan


Unit-linked insurance plan (ULIP) is a product that brings you the best of two worlds—insurance and markets. A part of the premium you pay is used for the life insurance policy, while the rest is used to invest in equity, stocks and mutual funds. But, how do you calculate the money your family would receive if you pass away during the policy period or you would receive after the policy matures. It can be quite confusing to calculate the final sum assured in a ULIP. So, let’s try to simplify this for you:

What is sum assured?

Sum assured is the amount promised by the insurer to the policyholder’s nominee in case of an unfortunate event.

To give an example, say you bought a policy that promises to pay Rs 10 lakh to your nominee/s in case of an unfortunate event. The promised amount is known as the sum assured.

It is important to note that the premium amount and the sum assured are directly related. The higher the premium paid, the greater is the sum assured.

Say, Rakesh purchases a ULIP plan with a sum assured of Rs 10 lakh with an annual premium of Rs 50,000 for 20 years. Let’s assume that Rs 25,000 of this premium goes towards the insurance amount and the remaining Rs 25,000 is invested in the markets. The policy may have the following scenarios:

The nominee/s would only get the sum assured if something were to happen to Rakesh within 5 years from start of policy
The nominee/s would get the sum assured or the fund value, whichever is higher, if something were to happen to Rakesh between 5 and 10 years from start of policy. The returns on the amount invested in the market are called fund value.
The nominee/s would get both the fund value and the sum assured if something were to happen to Rakesh after 10 years from start of policy
On survival of the policy duration, Rakesh would get the entire fund value, but not the sum assured.
Now, let’s look at the different cases for payout:

Case 1: If Rakesh passes away before the first five years of buying the ULIP plan, his nominee/s would get Rs 10 lakh, the sum assured.

Case 2: If he passes away between five and 10 years, his nominee/s would receive either the sum assured or the fund value. It would depend on whichever amount is higher. So, if the fund value is Rs 9 lakh and the sum assured is Rs 10 lakh, the nominee/s would get the latter amount.

If the fund value amount, say Rs 12 lakh in this case, is higher than the sum assured, the nominee/s would receive the former amount.

Case 3: In case he passes away after ten years, the nominee/s would receive both the fund value and the sum assured.

Case 4: If Rakesh survives the maturity duration, he would receive the entire fund value. He would, however, not get the sum assured.

It is interesting to note that the fund value depends on the percentage you decide to invest in the market. Also, the payout terms are different, and they vary with the type of policy. Thus, it is necessary to check beforehand whether the ULIP plan meets your requirements.

Difference between ULIP and term policy
There is a difference between term insurance plans and ULIPs. In a term insurance policy, the nominee/s receive a fixed amount as the sum assured in case of the policyholder’s death.

In ULIP’s case, the final amount can comprise the sum assured, the fund value or both.


Now that you know how to calculate the payout on a ULIP, you can make an informed decision before buying one. Use the ULIP calculator to estimate what will be your sum assured. And, invest in Aegon Life’s iInvest ULIP Plan to get market-linked returns while securing your loved ones’ future.