Unit-Linked Insurance plan (ULIP) provides twofold benefits of investment and insurance. Unlike traditional insurance vehicles, ULIPs are subjected to numerous risk factors, where the returns on investment are directly proportionate to market performance. ULIP offered by various insurers has different charge structures. Before investing, knowing the complexities of charges that you will have to pay over the entire duration will help you buy the best saving plan. These charges will help you in evaluating your money-saving plan.
Here are the major ULIP charges:
- Premium Allocation Charges in ULIP:
It is a part of the first year premium charged by the insurer before designating the policy. These are the primary expenses acquired by the insurer when the policy is issued. It covers fees such as cost of underwriting, medical costs, agent’s fee, etc. After subtracting these charges, the remaining amount is invested in the preferred fund.
- Administration Charges in ULIP:
Each month, a fee is debited by the insurer for the administration of your plan. These charges are deducted by cutting the units proportionately from each of the funds you have chosen. This will be either same throughout the duration or changes at a predefined rate.
- Fund Management Charges:
These costs are charged for managing your funds. This is charged by the insurance provider as a percentage of the fund’s value. And it is subtracted before calculating the net asset value of the fund. According to IRDAI ordinances, it should not exceed 1.5 per cent.
- Surrender or Discontinuance Charges:
These are charged when the insurer surrenders ULIPs untimely. As per IRDAI’s regulations, an insurance provider shall gain only the incurred cost in the event of discontinuance of the policy. They are charged as a portion of the fund value and premium. The surrender charges in ULIPs for the first four years will vary from Rs 1000- Rs 3,000, based upon the premium paid by the policyholder. After the fifth year, no surrender charges are applied.
- Partial Withdrwal Charges in ULIP:
From the third year onwards, policyholders are entitled to withdraw from ULIP, subject to pre-specified conditions. However, such withdrawals attract penalties.
- Mortality Charges in ULIP:
The insurance company imposes these for providing death cover to the policyholder. The insurer calculates it after considering your age, health-related risks and mortality table.If you want to build a certain corpus, you can take the help of the ULIP calculator to calculate your premiums
- Switching Charges in ULIP:
An investor is allotted a set number of free switches between different fund choices every year. Consequently, each switch would attract charges, which ranges up to Rs 100-500 per switch, directed by the insurer’s charge structure.
- Premium Redirection Charges in ULIP:
Insurance provides levy premium redirection charges if you direct your future premium payments to less risky fund alternatives, without changing the existing fund’s structure.
- Guarantee Charges in ULIP:
Insurance provider imposes guarantee prices on ULIPs of the high-NAV guarantee type. These are paid by the insured for receiving a guaranteed return.
- Rider Charges in ULIP:
These are imposed on additional benefits purchased over the primary plan. For example, you need to pay extra prices if you choose a critical illness rider.
- Miscellaneous Charges in ULIP:
It is relatively a smaller portion in the charge structure. You need to pay miscellaneous charges, for example, if you decide to change the premium payment frequency from yearly to quarterly.
ULIPs help you save a lot more even if you have low investment appetite. It is crucial that you know the charges that are incurred when you opt for a ULIP plan. Evaluate the charges, analyse your plan and save for a bright future.
