The Death Benefit in a ULIP is not guaranteed, i.e. the minimum is Sum Assured but the maximum may vary according to the fund performance.
Sum Assured is the Minimum Guaranteed Death Benefit. Knowing the Sum Assured alone is only part of the information. When death actually happens, the Fund Value plays an important role. Since we cannot know that in advance, this is the saying that Death Benefit in ULIP is NOT guaranteed, however, the minimum Death Benefit is surely guaranteed.
Death Benefits can be of 2 types:
Sum Assured or Fund Value, whichever is higher
Sum Assured, being constant throughout, is the Minimum Guaranteed Death Benefit. Thus Death Benefit is Sum Assured as long as Fund Value is less than the Sum Assured. As soon as Fund Value exceeds the Sum Assured, the Death Benefit is the Fund Value, as mentioned in the diagram below.
Sum Assured + Fund Value
This is possible in a double-benefit plan where both Sum Assured and Fund Value are payable to the customer as the death benefit. At any point in time, both Sum Assured and Fund Value would be paid out to the customer on account of the death of the life insured, as shown in the diagram below.
Thus, every ULIP has either of the 2 types of Death Benefit guarantee. The Sum at Risk depends on the Death Benefit guaranteed by the company for that particular product. Basically, Sum at Risk is the Amount of Risk that the company takes on your life. It is the amount assured on your death (Sum Assured) – the amount you have accumulated over the years (Fund Value) if Death Benefit is either Sum Assured or Fund Value, whichever is higher as in Type 1.
Sum at Risk = Sum Assured – Fund Value for ULIPs where the Death Benefit is either Sum Assured or Fund Value, whichever is higher.
However, it is equal to only the Sum Assured if both Sum Assured and Fund value needs to be paid on death. Then the Fund that has been accumulated over the years does not reduce the life’s risk, hence it doesn’t reduce the Sum at Risk.
And Sum at Risk = Sum Assured for ULIPs where Death Benefit is Sum Assured + Fund Value.