11 ULIP Charges You Should Be Aware Of

4 min read

ULIPs are double beneficial policies offering the insured individual the security of insurance as well as investment. Read on if you want to know about ULIP meaning, charges and other aspects.

If you are unaware of ULIP meaning, you should know that it is the short form of Unit-Linked Insurance plans. Distinct from conventional insurance policies, ULIP or Unit-Linked Insurance plans are subject to different market risks. However, the returns of such plans are high depending on the market conditions. Different insurance companies offering different ULIPs allow distinct charge structures, which are important for people interested in procuring ULIPs to know before investing on such plans. This is because they need to pay those intricate charges throughout their ULIP tenure.

Also Read : Beginner’s Guide to ULIPs and Their Benefits.

11 ULIP Charges

Below are some of the major ULIP charges :

1. Charges of Premium Allocation – Premium allocation charges are nothing but a percentage of the first premium paid on the initial year of buying the policy by the insured. This percentage is charged by the insurance company as an allocation charge prior to allocating the policy to the insured.  Among the various costs included under this charge are:

    • Medical expenses
    • Agent’s commission
    • Cost of underwriting, etc.

Once these costs are deducted, the insurer invests the remaining amount in selected funds. For instance, if you are levied with a premium allocation charge of say 10 percent, while the total premium you pay is 50,000. In that case, your insurer will deduct 5000 as allocation charge and the remaining 45000 will be used for investment purposes.

2. Charges of Administration  – This is another fee levied by the insurer every month for managing your policy. To deduct these charges, the insurer cancels balanced units from each selected fund. The administration charges might stay as it is throughout the policy period or might vary at a rate that is predefined.

3. Charges of Fund Management – Like the administration charges, these ULIP charges are levied for managing the funds of your policy. The insurance company charges them as a percentage of the total value of the funds, which is inferred before calculating the fund’s total asset value. IRDAI regulations has specified this charge to be at 1.5% or below.

4. Charges for Surrendering or Discontinuance of policy – These costs are imposed if the ULIP is surrendered ahead of time. The ULIP surrender charges for the first four years are between 1000 to 3,000 rupees based on the premium amount. However, there is no surrender charge levied after the fifth year.

5. Charges of Partial Withdrawal – ULIPs allow investors to partially withdraw from the policy starting from the third year onwards. This again depends on conditions that are pre-determined. Here, the insurer might levy a penalty charge for withdrawing money before tenure ends.

6. Charges of Mortality – The mortality charges are levied by the insurer to the insured for offering coverage against death. This charge is determined by the insurance company after considering different factors like age, health condition, and mortality table among others.

7. Charges of Switching policies –  There are a particular number of free switches to shift from different options of funds that an insurer allows an investor to do each year. Further to this, if the insured avails more options of switching, they have to pay extra charges from 100-500 rupees for each switch.

8. Charges of Premium Redirection – There is also a premium redirection cost imposed by the insurance company to the insured for redirecting their future premiums to a safe fund option within the same fund structure.

9. Charges of Guarantee – Further to the above charges, insurance companies also impose a charge for guarantee in the high-NAV guarantee ULIPs. The insured has to pay these charges if they wish to get a guaranteed return.

10. Charges of Rider – These costs are charged by the insurer if the insured seeks any extra benefits in addition to the base plan, such as critical illness rider or any other rider that is bought in addition to the base plan.

11. Other Charges  – These miscellaneous charges are the ones that are fairly lesser in the charge structure of a ULIP and are considered under miscellaneous charges. For instance, charges levied for changing the premium payment mode from annual to quarterly payment and so on. There are numerous such minute charges that are levied under the miscellaneous charges.

To Conclude

You must be wondering as to how many types of charges are there for ULIPs. Yes, as you can see above, there are many small and large charges levied on different ULIPs by different insurance providers. Now it is up to your discretion to choose the ULIP as per your requirement as per the allocation charges in the ULIP.

However, you must understand that there are many benefits of ULIPs as they offer flexibility and transparency in terms of the plan. Also, with ULIP you can ensure goal based savings as well as avail tax benefits. ULIPs also offer Liquidity. Overall, it is up to you and your discretion to invest in ULIPs or not depending on different factors and charges as mentioned above.

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Gayatri Prabhu, Head-Digital Business at Mahindra Insurance Brokers Limited (MIBL) is one those few digital leaders who has the width and depth that is required to execute an ROI driven holistic digital strategy. She cuts through the noise, identifies the critical levers and leads her team to successful execution of the defined strategy. Her core mantra to win new and retain existing customers is: understand the consumer behavior and craft experiences around it.

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