All You Need To Know About ULIP Charges

With the dual benefit of investment cum insurance, ULIP plans have gained huge popularity and are considered as one of the most common investment products in the market. However, as compared to other investment options ULIP plans offered by different insurance companies have a different structure of charges.
In a unit-linked insurance plan, the whole premium amount paid by the policyholder is not used to buy units.

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The insurance companies deduct fixed charges before allotting the units and the remaining amount of premium is invested in different asset classes like equity, debt, etc. Let’s take a look at the different charges that are applied in the ULIP plan. 

  1. Premium Allocation Charges

    A specific percentage of premiums deducted by the insurance company is known as the Premium Allocation Charge (PAC). At the starting years of the ULIP plan, the insurance company usually charges a higher rate of premium allocation charge. The premium allocation charge in the ULIP plan includes renewal charges, initial charges, and commission charges.

    The premium allocation charges of the policy differ on basis of whether the policy is a regular or single premium policy, the frequency of premium payment, the premium rate of the policy, and the mode of premium payment.

  2. Mortality Charges

    Mortality charges are deducted to provide insurance coverage under the plan. Mortality charges are deducted based on various factors like coverage amount, age, etc. These charges are applicable on monthly basis and are deducted regularly from the chosen funds. 

  3. Fund Management Charges

    The insurance companies’ charges fund management charge to manage various funds in ULIP. These charges are imposed to manage the funds and are subtracted before reaching a NAV. The fund management charge is adjusted from net asset value on a daily basis. The maximum fund management charge of 1.35% per annum of the fund value is applicable and is charges on daily basis. Normally, the insurer charges the maximum in an equity fund, while the non-equity fund charges are lower. 

  4. Policy Administration Charges

    Policy Administration Charges are the fees charged for the administration of the plan and are charged per month by the unit’s cancellation from all the chosen funds. The policy administration charge remains the same throughout the tenure of the policy or varies at a pre-determined rate. 

  5. ULIP Charges

    ULIP Charges

    Types of Charges 

    How it is Charged

    Frequency of Deduction 

    Premium Allocation Charge 

    Fixed Premium Percentage 

    As and When the premium is Paid 

    Fund Management Charges 

    On fund option ( Prior declaring NAV)

    Daily Basis 

    Mortality Charges 

    Sum Assured, Depends on age 

    Monthly basis 

    Policy Administration Charge 

    Fixed % of fund value 

    Monthly basis 

    Fund Switching Charge

    Flat fee

    Transaction wise

    Partial Withdrawal Charge

    Flat fee

    Transaction wise

    Premium Redirection Charge 

    Flat fee

    Transaction wise

    Premium Discontinuance Charge 

    Flat fee

    Transaction wise

    Overall Impact of Charges 

    In case the policy tenure is less than or equal to 10 years: RIY not more than 3% at Maturity
    In case the policy tenure is more than or equal to 10 years: RIY not more than 2.25% at Maturity

  6. Partial Withdrawal Charge

    After the completion of the lock-in period of the ULIP plan, the policyholders are allowed to make a partial withdrawal from ULIP.  There are some ULIP plans that don’t have any limit on partial withdrawal while other ULIP plans charge a partial withdrawal charge of Rs100 in case the insured makes more than 2-4 withdrawals. 

  7. Fund Switching Charge

    Every year the investors can make a fixed number of free switches between various fund options in ULIP plans. Apart from this, each switch made by the insured includes charges which can range from Rs.100-Rs.500 per switch, subjected to the charge structure of the insurance company. 

  8. Premium Redirection Charge 

    The insurance company charges premium redirection charges in case of the insured redirects the future premiums of the policy to another less risky fund option, without making any changes in the existing structure of funds.

  9. Rider Charge

    Riders are offered under the ULIP plan to enhance the coverage of the policy. However, to avail of the rider benefit, additional rider charges are deducted from the fund option per month. For instance, if the insured wants to avail of the accidental death benefit or critical illness rider then he/she will have to pay an extra rider charge to avail its benefits. 

  10. Top-up Charge

    ULIP plans offer unique features of top-up.  This allows the investors to invest an extra sum either once or more than one time in the policy. The top-up amount can be paid anytime during the tenure of the policy. Opting for top-up helps the investors to multiply the wealth by increasing the corpus amount. Many insurance companies deduct a fixed percentage as top-up charges. 

  11. Premium Discontinuance Charge

    In case the policyholder decides to stop paying the premium before the completion of the lock-in period of 5 years then the money invested by the insured gets locked in a discontinuance fund.  A premium discontinuance charge is levied for the discontinuance of the premium under the terms and conditions of the policy.  The premium discontinuance charge is levied as a percentage of FV (fund value) and a percentage of the premium amount.  

    For example:  If the yearly premium of the policy is higher than Rs. 25,000 the maximum discontinuance charge of the policy can be Rs.6000, Rs.5000, Rs.4000, or Rs.2000 in the 1st, 2nd, 3rd, 4th, and respective policy years. In case, the yearly premium of the plan is lower than Rs. 25,000 then the discontinuance charge of the policy can be Rs.3000, Rs.2000, Rs.1500, or Rs.1000 in the 1st, 2nd, 3rd, 4th, and respective policy years. No surrender charges are applicable in case the insured discontinues the policy after the completion of the 5th policy years. 

Wrapping it Up!

Even though investing in ULIP plans offers the combined benefit of life protection and investment returns. It is very important for an individual to know about these ULIP charges before zeroing in on the plan. 

If you are an individual who is more focused on the investment part but still worries about the financial security of their family, then a ULIP plan is the right choice for you. However, before zeroing in on the plan don’t forget to keep in mind the above-mentioned ULIP charges to make the right decision.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
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