How Do Sum Assured and Fund Value Differ in ULIP

When people buy a Unit Linked Insurance Plan or ULIP, they’re often drawn to its dual advantage of life cover plus market-linked investment growth. Yet, one of the most common areas of confusion lies between two key terms: Fund value and sum assured. These are more than just numbers on your policy statement; they define how your ULIP works, what your family receives in case of your unfortunate death, and how your ULIP funds perform over time.

Knowing the difference between sum assured and fund value in a ULIP is vital if you want to make informed decisions and get the best out of your plan.

What is Sum Assured in a ULIP?

The sum assured is the guaranteed amount your insurer promises to pay your nominee if something happens to you during the policy term. Think of it as the insurance backbone of your ULIP. It is the financial protection component that secures your family’s future, no matter how the market performs.

When you buy a ULIP, you choose the sum assured upfront. It usually depends on factors such as your age, income, and premium amount. For example, if your policy offers a life cover that’s ten times your annual premium, and you pay ₹1 lakh per year, your sum assured would be ₹10 lakh. This remains constant throughout the policy term, although some plans may allow you to decrease it after the initial lock-in period, subject to insurer terms and the minimum sum assured requirements.

The key point to remember is that the sum assured does not fluctuate with the market. It’s a fixed, predetermined amount. This means that even if your investments underperform, your family is still guaranteed a safety net through the life cover.

In short, the sum assured reflects the insurance part of your ULIP, providing stability and protection amidst market volatility.

What is Fund Value in a ULIP?

While the sum assured offers protection, the fund value represents the investment part of your ULIP. Every time you pay a premium, a portion of it goes into selected market-linked funds, which could be equity, debt, or hybrid, based on your risk appetite and chosen by you. This premium is utilized to buy units in the fund as per the prevailing Net Asset Value (NAV) of that day i.e. Portion of Premium utilized for investment / NAV = Units. The other portion becomes the life insurance component.

The fund value is essentially the current market value of your units. It’s calculated by multiplying the number of units you hold by the Net Asset Value (NAV) of each unit on a given day.

For example, if you hold 5,000 units in an equity fund and the NAV is ₹30, your fund value will be ₹1,50,000. As the NAV changes with market movements, your fund value fluctuates too. This is what gives ULIPs their investment potential - the opportunity to earn returns over time, though subject to market risks.

Many policyholders track their fund value regularly to understand how their investments are performing. At the end of the policy term, if you survive the tenure, you typically receive the fund value as your maturity benefit.

So, the fund value is your investment corpus, while the sum assured is your insurance cover. Both coexist but serve entirely different purposes within the ULIP structure.

You can also use a ULIP calculator to estimate your fund value projections and life cover benefits based on premium inputs, tenure, and expected returns.

What is the Difference Between Sum Assured and Fund Value in ULIP

To really understand how a ULIP works, it helps to look at both these components side by side. Here’s how they differ in structure, purpose, and impact:

 Please note: In most ULIPs, the death benefit paid to the nominee is typically the higher of the Sum Assured or the fund value (Higher of SA or FV). However, some plans may offer an additional benefit structure, such as sum assured plus fund value (SA+FV).

Understanding Sum Assured and Fund Value for Better ULIP Decisions

The smarter you are about understanding these two components - sum assured and fund value, the more effectively you can tailor your ULIP to your life stage and financial aspirations.

If your primary concern is family protection, you might opt for a higher sum assured. If you’re more focused on long-term wealth creation, you could allocate more towards equity-based funds to grow your fund value.

Before investing, compare different ULIPs and evaluate how they balance insurance and investment benefits.

Frequently Asked Questions

1. What happens if the fund value is lower than the sum assured at the time of death?

If the policyholder passes away, the nominee generally receives the higher one (at that time) out of two - the sum assured or the fund value. This ensures your family receives the most beneficial payout, even if your investments haven’t performed well. Hence, in the above scenario your nominee will receive Sum Assured.

2. Can I increase my sum assured in a ULIP?

Generally, no. Once a ULIP policy is issued, the sum assured is fixed. However, some insurers may allow a decrease in the sum assured after the lock-in period. Increasing the cover usually requires purchasing a new policy.

3. Is the fund value guaranteed?

No, the fund value depends on market performance. However, with a long-term horizon and smart fund selection, ULIPs can help generate steady growth over time.