Most of the companies are offering ULIPs with 2 options.
In case of death,
1. Sum Assured OR fund value whichever is higher is paid
2. Sum Assured AND fund value is paid.
The customer has to choose one option which is best suited to him.Let us see how he is charged and benefited on this.
Assume he has taken sum assured of 50 Lakhs and now the fund value is 25 lakhs and mortality charge per lakh is 500 rupees.
If the customer choose first option,In case of death, the dependent will get 50 lakhs here because Sum assured is higher than fund value.In case he is alive he will be charged only for the SUM AT RISK,, that is 25 lakhs( 50 Lakhs Sum Assured – 25 Lakhs Fund Value).So the mortality charge is 25*500=12500.(This will vary according to the fund value through out the term).
If the customer choose the second option,
In case of death, The dependent will get 75 lakhs( 50 SA and 25 FV).If he is alive he will be charged 25000 rupee as Mortality charge.( This will be constant through out the term of policy because the company bears full risk as the sum assured and fund value is paid in case of death. clear on SUM AT RISK. the customer can choose any one of the option according to his need. But my suggestion is the first option because it is like insulating the asset accumulation phase with very little expense, as wealth increases amount towards insurance decreases month on month.