What is the Method of Arriving at ULIP Net Asset Value for Surrenders, Maturity Claim, or Switch?

First understand about what is ULIP in brief? So ULIP or Unit Linked Insurance Plan is a type of life insurance plan, which offers you the benefits of both investment and insurance. ULIP plan gives you an opportunity of wealth creation while providing you the security of a life cover. The net asset value (NAV) of a Unit Linked Insurance Policy (ULIP) is the total value of the unit’s holdings minus the value of its arrears. The NAV is calculated after abating arrears like management charges, marketing charges, operating charges, and other charges. However, if the policy journey involves a maturity claim or switch, how do you arrive at the NAV? Read on to find out.

What is the formula of the NAV of a Unit Linked Insurance Policy (ULIP)?

NAV = (Value of Current Total Market Value of Investments Held) – (Value of Current Arrears & Provisions)/ Total number of outstanding units on date.

Assume that a company provides a Unit Linked Insurance Policy (ULIP) option to two of its clients, Ajit and Simran. Now, while Ajit invested Rs 1,00,000, Simran could only pay Rs 80,000. From these two quantities submitted by the two guests, the company deducts associated charges, and the remaining investment quantum comes out to be Rs 99,000, and Rs 79,200 independently.

Now, the total quantum to the company for investing in different funds is Rs 1,78,200. Suppose the fund director has created units with a face value of Rs 20 per unit. Considering this, Ajit will hold 4950 units, while Simran will have 3960 units. The total number of units will be 8910.

On the first day, the NAV of the finances will be Rs 1,78,200 (total quantum), divided by the total number of units (that’s 8910 in this case). The remainder that we get is 20.

After the investment, let’s assume there’s a profit, which increases the fund’s net value to Rs 2,00,000. Now, there will be a ULIP NAV. The new NAV can be calculated by dividing Rs 2,00,000 by 8910 (as the number of units in the fund remains unchanged). This means the new value of each unit in the fund is now Rs 22.45, and both Ajit and Simran will make a profit of Rs 2.45 per unit.

How to calculate NAV for handovers, maturity claim, or switch?

You need to abate the arrears and charges on the day of the rendition, maturity claim, or switch, and what remains will be the NAV of the ULIP.

When it comes to a surrender, remember that after applying for the surrender of the policy, the insurer will first abate certain closure charges and also move the balance of fund value to the Discontinued Policy (DP) fund. During the period when finances lie in the DP fund, the insurer may apply a fund operation charge, which cannot exceed 0.5 percent of the quantum. The money lying in the DP fund will continue to earn interest, as insurers have to give a minimum guaranteed return, which would change from time to time.

If the annual premium is more than Rs. 25,000, the maximum discontinuance charge can be Rs 6,000 or Rs 5,000, Rs 4,000, Rs 2,000 in the 1st, 2nd, 3rd, and 4th policy year, respectively. For a lower premium value, the discontinuance charge will be Rs 3,000, Rs 2,000, Rs 1,500 or Rs 1,000 in the 1st, 2nd, 3rd, and 4th policy year, respectively. If the policy is discontinued in the 5th policy year, there will be no such charge.

What affects NAV?

The NAV will be calculated on the basis of the date of application. However, if there is a maturity claim or switch on a given day before 1500 hours, the ending NAV of the same day is applicable. After 1500 hours, the ending NAV of the coming business day is applicable.

Hemant Kumar

Hemant Kumar is a project manager at Tridindia with more than nine years of commendable experience in writing about LMS, translation, and IT. His unmatched talent and passion for digital marketing gave him the opportunity to work as a multi-tasking project manager at TridIndia’s sister company, Link Building Corp. Today, he contributes to the world by imparting knowledge on SEO, link building and internet marketing etc., that helps business owners grow their online business.