What happens to your pension ULIP in case of untimely death? What policyholders need to know

I’m Manit, 35, and I work as a banker. I’m planning to buy a Pension ULIP plan. Many plans offer a Waiver of Premium (WOP) benefit as an add-on, but I’m unsure whether it is really necessary. In case something unfortunate happens to me, how exactly does this feature protect the policy and my wife? Also, does opting for WOP significantly increase the overall premium cost?

Vivek Jain, CBO, Life Insurance, Policybazaar

Dear Manit,

When people buy a pension plan, they usually focus on the retirement corpus they want to build. A Pension ULIP helps build that corpus by keeping your money invested in equity for long-term growth. At the same time, on maturity, it ensures that at least 40% of the accumulated corpus is converted into lifelong guaranteed income, helping secure your retirement, not just fund it.

However, while planning for retirement, it is equally important to ask: what happens in the event of an untimely demise?

Some key questions to consider:

If your spouse is not working – you may already have a term plan to take care of immediate financial needs. But what ensures that your spouse continues to receive a regular income for life, especially during the retirement years?

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Even if your spouse is working – will the added financial responsibilities make it difficult for them to continue planning and saving adequately for their own retirement?

A Waiver of Premium (WOP) feature is designed to protect your retirement plan when life takes an unexpected turn. If the policyholder passes away during the policy term, the insurer steps in to pay the future premiums, ensuring that the retirement plan continues uninterrupted and the long-term retirement goal stays on track.

In practical terms, here is how it works.

If an unfortunate event occurs during the policy term:

• The insurer takes over future premium payments on your behalf, ensuring that the policy continues uninterrupted and the intended retirement corpus remains on track.

• 105% of all the premiums paid till date are returned to the nominee as a lump-sum benefit to meet any immediate financial needs.

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Consider an example.

Suppose an individual invests ₹15,000 every month in a long-term retirement-oriented plan with a 20-year horizon, targeting a corpus of around ₹1.4 crore.

If the earning member passes away after just one year of contributions, the biggest risk is not market volatility. The bigger risk is that future investments stop.

Without Waiver of Premium, the spouse may struggle to continue the contributions and would receive only 105% of the premiums paid, potentially impacting regular income flow during later life stages.

With Waiver of Premium, the insurer continues funding future premiums for the remaining policy term, allowing compounding to continue and keeping the retirement goal intact. Additionally, the family may receive a lump-sum payout of ₹1.89 lakh (105% of the premiums paid).

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On the cost aspect, opting for WOP does increase premiums, but typically the increase is modest compared with the long-term protection it offers. The exact impact varies across insurers and product designs, but for many buyers, the additional cost is often a small trade-off for ensuring that decades of financial planning do not get disrupted midway.

Retirement planning is not only about building a corpus. It is also about ensuring that the plan survives life’s uncertainties.