What is Paid-Up Policy In Insurance?

Paid-Up Policy In Insurance

Paid up policy can be availed by people in case they do not wish to make any further payment but want to stay invested in the life term insurance plan. Let’s find out what is paid up policy, in this post.

If a policyholder doesn’t want to make any more payments for his/her life insurance policy but at the same time wants to remain invested in the plan, the person has the option to avail ‘Paid Up’ policy.

Now, what does ‘paid up’ policy mean?  Well, ‘Paid up’ policy in insurance is like a life insurance policy in which the insured has paid all the premiums and there is no commitment from the side of the insured. The insured, in this case, doesn’t make any further or subsequent payments of the premium. However, the policy stays intact till the termination of plan or death of the insured.

So, we can say that a paid up insurance plan is a life insurance plan that is paid completely and is in operation. Here, the policy continues to operate, however, the benefits received get reduced. There is no burden of paying any money for the insured and the policy will stay valid till it reaches maturity or till the death of the policyholder.

As we know, life term insurance plans are generally long duration policies where the insured is required to pay the premium for long tenure throughout the policy term.  However, it might happen with many policyholders that they are unable to pay any further premium due to some or the other reason. But at the same time they do not want to close the policy either. So, in such a case , the insurer reduces the sum assured as per the already paid premiums of the policy and this is called paid-up policy. Here, the insured is not required to pay any more premiums.  However, there are some conditions that need to be followed before the insured could convert their life insurance policy to a paid-up plan.

Let’s check the conditions under which paid -up policy works.

How does Paid-Up Policy work?

Paid-up policy option is offered by many insurers to keep life insurance policies in force, especially for those people who fail to pay premiums after a certain period of time. However, the key requirement to convert a policy into paid-up is that the policy should acquire surrender value.

Further, there are some other conditions that are also required to be fulfilled if the insured wants to acquire paid-up value, such as:

• If the policy tenure is less than 10 years, the insured must pay premiums for at least 2 years
• If the tenure of the policy is more than 10 years, the insured needs to pay premiums for at least 3 years
• Further, a paid-up plan may not fetch the insured any profits or bonuses with the sum assured at the time of maturity
• The riders that were added to the life insurance policy also do not gain any paid-up value
• In case of ULIPs, the insured can expect to obtain a paid-up value only if the policy has completed the lock-in period

Can you calculate the paid-up value by using a calculator?

Yes, you can see how to calculate the paid up value of LIC policy.  Below is the formula that can be used to calculate paid-up value in a policy:

Sum Assured (premiums already paid/premiums that are payable) = Paid-Up Value

For instance, imagine that you bought a life insurance policy with INR 5 lakh as sum insured for 20 years.  Now you start paying the annual premium every year till 10 years. After 10 years, you had difficulty in paying the premium and you wanted to get the policy converted to paid-up.

So, in this case you can calculate the paid-up value as:

Paid-Up Value = sum assured (5,00,000 * 10/20) = 2,50,000

Further to the paid-up option, the insured also has a surrender option that they can avail in case of life insurance policies.

Read More: What Happens If You Provide False Information On A Life Insurance Proposal Form?

Surrender Option in Life Insurance

Surrender option is a benefit offered to the policyholder, which they can avail in case they are not happy with the insurance plan, its coverage or return. Here, the policyholder can surrender the plan after 3 years of premium payment and take their money back. However, the value received on surrendering the policy is based on a certain percentage of the premiums paid. This percentage depends on the time of surrender of the policy and it deducts the premium paid in the first year. The percentage also differs as per insurer along with year of surrender.

Paid-Up Vs Surrender: Which is better?

Both paid-up and surrender value have different uses. An insured can use a paid-up option when:

• His/her policy is about to reach maturity in the near future
• He/she don’t have immediate requirement of money
• But, the person can’t pay premium due to some reason

Conversely, surrender option is used by people:

• Who have any urgent monetary requirement
• Whose policy is reaching maturity in 8-10 years
• They want to use the money to fulfill an immediate need or use the money in other good investments

Advantages of a Paid-Up Policy

Let’s check the benefits that an insured can get from a paid-up policy:

• In case of paid-up policy, the insured is still protected under the policy and the family of the insured still receives the death benefit in case of demise of the policyholder during the policy tenure. Further, buying a new plan after a certain age is normally very costly
• Also, if your policy has already acquired any bonus till you were making the payments of the premium, it is added to the paid-up value
• The insured can also get loan benefit if the policy has been paid for a certain time duration and it has acquired a surrender value
• You can seek for installments based payment of the paid up value at the time of claim settlements

To Conclude

Now you know what a fully paid up policy is? However, it is advised to read the policy document thoroughly before you choose to convert your policy into a paid-up one. You must also check with the insurance company before buying your plan if they allow a paid-up option. Rather than closing the policy via the surrender option, it is better to stay covered with a reduced paid-up policy even with a lowered sum assured.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

 

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Does your Car Insurance Policy cover vandalism?

Vandalism is an act of deliberate destruction or damage of property, including vehicles both private and public. However, is vandalism covered by car insurance ? Let’s read about it in this post!

It is a legal requirement in India, as per the Motor Vehicles Act of 1988, to have a third-party liability car insurance for every car owner. However, besides being a legal requirement, car insurance policies also offer several benefits to the insured by means of offering financial protection against car damages. However, the benefits or coverage received under a car insurance policy depends on various factors such as the kind of policy purchased as well as what’s included and what’s not included under your car insurance plan and so on.

In most cases, a comprehensive car insurance plan cover risks like accidents, natural and man-made disasters, and so on. However, do you know if your car insurance covers vandalism? Let’s find out. But first let’s check the vandalism meaning, and why vehicle owners require cover against it?

What do you mean by Vandalism?

As mentioned above, Vandalism is an act of deliberate destruction of property and vehicles of other people. Vandalism occurs commonly at times of civil unrest like riots when people turn to roads and destroy public as well as private properties including shops, vehicles, houses etc.

Can you get Car Insurance against Vandalism?

Is vandalism covered by car insurance? This is one of the important questions that many people want to know. There are some plans that offer car vandalism insurance. However to understand if vandalism is covered under your car insurance plan, you need to comprehend your policy well along with knowing about different plans available.

For instance, there are different kinds of car insurance policies such as, third-party liability insurance plans and comprehensive car insurance plans.

Third-party Car Insurance

A third-party car insurance offers coverage against liabilities that arise out of any third-party damages and injuries. This plan also offers coverage in case of third party death and disability caused due to accidents. Thus, the third-party liabilities cover legal accountabilities that may arise due to third-party damages.

So, if your vehicle causes any damage to other people’s vehicle or injures someone, in that case your insurer would compensate for the damage/injury caused due to your fault. It also includes the death of third-party victims caused because of your car.

Comprehensive Car Insurance

On the other hand, a comprehensive policy is the other type of insurance plan that offers coverage against your own vehicle damages along with offering coverage against third-party liabilities.  Thus, it serves as a good option to suit the needs of both third-party and personal damages caused due to any mishap.

Since comprehensive plans cover both legal accountabilities and own damages, it offers coverage against natural calamities as well as man-made disasters including vandalism. So, if you buy a comprehensive car insurance plan, you can lower your expenses and enjoy more coverage. However, in this case the premium amount you pay would be enhanced too.

So, in general, comprehensive insurance policy covers two key things – third-party damages and Own Damage (OD), which is the damage done to your car. With this best car insurance policy, you can decrease your costs incurred on damages done to your own car.

Read More: Does a Car Insurance Policy Cover Car Suspensions?

What is the procedure to raise claims against vandalism?

If you want to raise a claim against vandalism, the first step to take is to inform your insurer against the mishap. Once you contact them, you would be guided by an insurance expert about the procedure that needs to be taken.

Moreover, one can also file a car vandalism insurance claim online by using an app or by visiting the insurer’s portal.  For this, you must have the following data handy:

• Your Car insurance policy number
• VIN or Vehicle Identification Number
• FIR or  First Information report
• Any other information like photographs or videos of the damaged car
• Any other added papers as per requested by the insurer etc.

To Conclude

Now, no one can predict damages  and so it is better to stay insured. This way, you can stay prepared for any calamity that may strike such as vandalism. Also, to avoid your vehicle getting vandalized you must take precautions like parking your car safely away from the main road or within the four walls of your compound.

Also, it is important to note that you must inform the insurer immediately after any such act of vandalism causes damage to your vehicle. Do not send the car for repairs unless it is inspected by the concerned authority on behalf of the insurer. Doing so might lead to rejection of your insurance claim.

Further, buy your car insurance policy online after comparing different plans so that you can get better coverage and benefits.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

 

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What is the Meaning of Absolute Returns in ULIPs?

Absolute Returns in ULIPs

All you need to know about absolute returns in ULIPs and what they mean for the financial future of you and your loved ones.

When doing financial planning for your future, there are two key aspects that every individual is bound to consider. One, meeting the basic essential financial requirements of the family. These may include kids’ education, career investment, marriage, and any other expenses that you may need to make towards a better future for your loved ones. And two, generating enough wealth to secure not just your future (post retirement) but also that of your family (in your absence post death).

Keeping these two concerns in mind, a person looks for a financial plan that serves these two needs well. And when you find a plan that combines both these in a single package, offering the dual benefit of ‘insuring’ your family’s financial future while ‘investing’ for higher wealth later on, you just got lucky! A ULIP or Unit-Linked Insurance Plan offers you just that.

Here we talk a little more about ULIPs and what absolute returns in ULIPs mean for the common investor. If you’re considering buying one of them, this blog would help you make an informed decision.

What is ULIP Plan?

Let’s begin by understanding what exactly is a ULIP policy and how it works. As stated above, ULIP is the common acronym for Unit Linked Insurance Plans. They come with a unique advantage of offering a combined benefit of investment and insurance to the buyer.

This means that upon buying the plan, the policyholder not only gets life insurance protection but is also given the option of making investments in the capital market, such as in debt funds or equity funds (or even both). With such an advantage, a person’s need for both insurance coverage and wealth creation can be satisfied in a single plan.

This is why ULIPs are generally favored as a financial plan product among a number of investors in India. Besides, there is the added benefit of saving taxes by investing in a ULIP insurance plan. Now let’s move on to understanding what is absolute return in ULIP?

Meaning of Absolute Return in ULIP Investment

As the name rightly explains, absolute returns imply the total returns or gains made by an investor over a certain time duration. How does one assess that? In financial terms, absolute returns in ULIPs are calculated by determining the difference between the starting value of the investment and its final value, over a specific time period.

Here is the simple formula for calculating absolute return in the context of ULIP investments:

Present NAV (Net Asset Value) – Initial NAV ÷ Initial NAV x 100 = Absolute Returns

Also note that the absolute returns from a ULIP investment are expressed in percentage form. Let us understand this calculation better by way of a small example.

Let’s assume that an investor named Sanjay bought a ULIP plan and invested Rs. 20,000 in it. After 5 years, the investment increased to a total amount of Rs. 30,000. Now to calculate the absolute returns gained from this particular investment, we would follow the formula explained above and arrive at the amount.

Absolute Returns = (30,000 – 20,000 ÷ 20,000) x 100 = 50%

Hence, the absolute returns from this specific investment is calculated to be 50%. In other words, Sanjay’s investment grew by 50% in 5 years.

Read More: How to Select the Best ULIP for Your Portfolio?

5 Reasons to Invest in ULIPs

We learned in the above section on how to determine the absolute return on your investment made in a ULIP plan. If you’re still unsure about choosing ULIPs for financial investment and wealth creation, take a look at some of its benefits below:

1. Investment with financial protection: Most financial investment products in the market focus solely on generating wealth for the investor. However, ULIPs are the only policies that offer the dual benefit of financial investment with lifelong insurance protection.
2. Flexible investment choices: Another benefit of investing your money in a ULIP plan is that it allows you to choose where you’d like to put your investment. You can choose between debt or equity funds, or even choose to invest in both. Your decision is solely based on how the market moves.
3. Flexible returns too: Since the ULIP plan is linked to the capital market, the returns on the investment are also directly related to the movement in the market. If the market is doing well, you’re likely to earn higher returns, and vice versa.
4. Financial protection to your family in your absence: The whole purpose of future investment is to secure your future and that of your loved ones. In case of your untimely and unfortunate demise, ULIPs would ensure that your family and dependents are not left helpless. The return earned from the ULIP plan would help meet all the financial goals of your family in your absence.
5. Tax benefits to the policyholder: Since ULIPs involve partial investment in life insurance, the premium amount payable towards maintaining the insurance aspect of the plan enjoys tax exemptions. As per Sections 80C and 10(10D) of the Income Tax Act, 1961, ULIP policyholders are entitled to enjoy tax benefits on the premium paid toward the plan.

Wrapping Up

ULIPs are by far considered the best financial product in the market, both in terms of investment and financial protection. After all, which other insurance policy would give you the added advantage of linking the plan to the capital market, earn returns, and generate wealth for your future?

It only makes sense then to look for some of the best ULIP plans for investment. When making a choice, keep in mind that the plan you choose must be aligned with your financial goals and that of your family’s for the future. Choose a sufficient life coverage on your plan as well so that you can receive adequate financial protection for a lifetime. Moreover, make sure to keep investing in your ULIP plan for a longer period so that you can generate sufficient wealth to meet all your financial goals adequately.

Found this post informational? Browse PayBima Blogs to read interesting posts related to Health Insurance, Car Insurance, Bike Insurance, Term Life Insurance and Investment section. You can visit PayBima to Buy Insurance Online.

 

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