What are the ULIP Charges that Everyone Needs to Know

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ULIP is one of the financial products that are offered by insurance companies. It is one of the best investment options available in the market. This is one of the best options because it has dual benefits including investment and insurance. The money is collected by the insurance company from various policyholders. The money that is given by the policyholders is partially invested by the company in various funds chosen by policyholders.

There are various benefits of investing in ULIP plans. You enjoy many tax benefits for investing in unit linked insurance plans under section 80C, section 80D and section 10(10D) of Income Tax Act. The best thing about ULIP is that you can easily switch between funds.

Check out various benefits of investing in ULIP plans:

  • Tax benefits: ULIP is a life insurance product and the insurance company provides you some tax benefits in the form of tax free maturity. The tax benefit relies on the type of the investment made in ULIP. Under some conditions, equity funds can be taxed at 15%.
  • Flexible: Unit linked insurance plan provides you with flexibility. In ULIPS, you have an option of switching between funds according to your choice. You can choose to invest in either equity or debt funds. You can choose the fund option as per the market condition and your risk appetite.
  • Risk appetite: The best thing about the ULIP is that investors can choose the funds as per their risk appetite. Those investors who have low risk appetite can choose to invest in debt funds. On the other hand, those investors who have high risk appetite can opt for equity funds.
  • Long term investment: If you are looking for a long term investment option then nothing is better than a ULIP plan. This investment option provides an opportunity to increase the lock-in period which gives you higher returns.
  • Low charges: The charges which are associated with ULIP are known as ULIP charges. ULIP charges are low.
  • Life cover: ULIP is the combination of investment and insurance. This product is offered by various insurance companies in the market. ULIP provides coverage for your life.

So ULIP is one of the best investment options as it has dual benefits including investment and insurance. If you are looking for a long term investment option with flexibility then nothing could be better than ULIP.

What are the ULIP charges?

ULIP charges are those which are associated with ULIP plans. In some cases, certain ULIP charges are not clearly communicated to the policyholders. It is important that you know about ULIP charges which you will have to pay for the entire term. This will help you to buy the best unit linked insurance plan as per your need and budget. ULIP charges structure varies among insurance companies and plans. Check out some of the major ULIP charges:

  • Premium allocation charges: These charges are the initial expenses spent by the insurer when the policy is issued. Premium allocation charges include fees such as underwriting cost, a commission of the agent, medical expenses, and more. Firstly these charges are deducted and then the remaining money is invested in the funds chosen by the policyholders. It is a percentage of the premium charged by the insurance company in the first year before alloting the policy. Suppose the premium allocation charge is 10% and the premium is Rs. 1,00,000. Then the insurance company will deduct Rs. 10,000 as premium allocation charges and remaining Rs. 90,000 will be invested in the funds of your choice.
  • Fund management charges: The insurance companies charge these charges to manage the funds of the policyholders. As per Insurance Regulatory and Development Authority, the fund management charge should not be more than 1.5%. It is charged by the insurance company as a percentage of the value of the fund. It is deduced before finding out the funds' net asset value. The fund management charge varies from fund to fund. The equity-oriented ULIP plans have more fund management fee in comparison to the debt-oriented ULIP plans.
  • Policy administration charges: The insurance company charges a fee every month for the administration of the policy. This charge is taken for the maintenance of the policy which is done by the insurance company. It includes the cost of the paperwork, the intimation of the premium, and more. This charge could be same throughout the term of the policy or it could increase at a rate that was determined earlier. As an alternative, it could be same in the initial 3 - 5 years and then rise by a fixed percentage annually.
  • Switching charges: An investor can switch a limited number of funds in a year. This helps to move the money between different fund options available in the plan. When the investor moves the money from one fund option to another fund option then it is known as switching. You will have to pay charges for each switching. Generally, the charge for per switch is Rs. 100 - Rs. 500, depending on the charge structure of the insurance company.
  • Mortality charges: When an insurance company issues a policy to the policyholder it assumes that the policyholder will survive to a particular age depending on the gender, current age, and health. The mortality charge helps the insurance company when the policyholder survives more than the assumed age. It is levied once a month. The amount that is paid as the mortality charges depends on the life cover amount sought, policyholder age, and other related details.
  • Discontinuance charges or surrender charges: Insurance Regulatory and Development Authority has given some guidelines on the maximum discontinuance charges that can be charged by the insurance companies. This charge should not exceed 50 basis points per year on the unit fund value. The insurance company is not allowed to charge anything else apart from this amount. The surrender charge will range from Rs. 1,000 - Rs. 3,000 in the initial four years, depending on the premium amount paid by the policyholder. After the completion of four years, no discontinuance charge or surrender charge is levied.
  • Partial withdrawal charges: Partial withdrawal charges are the ULIP charges. From the third year of the policy, investors can withdraw their money partially from ULIP, depending on the conditions already mentioned. You can find this charge mentioned in the brochure of the policy. You have to pay charges for such withdrawals.
  • Rider Charges: These ULIP charges are levied when the insured buys additional benefits or riders over the base plan. Let's say if you have taken a critical illness rider then you will have to pay extra charges as rider charges. The insured buys additional riders in order to avail additional benefits in the future.
  • Premium redirection charge: The policyholder pays the premium that goes into a particular fund option. The future premiums that are paid by the policyholder are also added to that particular fund option. Premium redirection charge is taken from you in order to redirect the future premiums into a different fund option. This redirection of premium amount does not impact the investments done initially.
  • Miscellaneous charges: It is a smaller amount that the insurance company takes from the policyholder. This charge includes the miscellaneous expenses that are incurred by the insurance companies in order to change the mode of the premium payment from quarterly to monthly.

Conclusion:

ULIP is a product from an insurance company. This is one of the most preferred investment options available in the Indian market. It is important that you do adequate research before buying any plan. Various tools are available online these days that help to compare various plans. So it is important that you do sufficient research via online medium, compare various plans with the help of online tools and then select the best as per your requirement and affordability. Such decisions should not be made in a hurry as ULIPs involve a huge investment. You should check the online ratings and reviews given by the other people before buying any ULIP plan. It would help you to select the best plan. The best plan is one which provides many benefits at an affordable price. Before buying a plan, you should thoroughly check the brochure of the policy that you can easily get on the official website of the insurance company. You should not rely on agents as sometimes they can missell the plans in order to earn more commission. You can easily buy ULIP plans via online medium. It is considered that online ULIP plans are cheaper than offline uLIP plans.

ULIP charges are paid by the policyholder to the insurance company. Premium allocation charges, fund management charges, policy administration charges, mortality charges, premium redirection charges, miscellaneous charges, switching charges, discontinuance charges or surrender charges, partial withdrawal charges, and rider charges are some of the major ULIP charges. The insurance company levies many ULIP charges on the policyholders. It is important that policyholders and investors know about all the major ULIP charges. Generally, ULIP charges are not communicated straightly to the policyholders. That is why it is important that policyholders know and understand ULIP charges as it will help them to select the best ULIP plan as per their affordability and requirement. ULIP charges vary from company to company and plan to plan. The policyholder should be aware of ULIP charges that are hidden. Before making an investment in ULIPs, it is necessary to understand the ULIP charges thoroughly.

All the ULIP charges have some reasons. Fund management charge is taken by the insurance company for managing the funds of policyholders. This charge should not be more than 1.5% as per Insurance Regulatory and Development Authority. In ULIPs, policyholders are provided an opportunity to switch between funds. The insurance company levies switching charges for moving the money from one fund option to another. This charge is quite nominal. Generally, Rs. 100 - Rs. 500 are charged for a switch. Discontinuance charges or surrender charges are charged in the initial four years of the policy. Once the four years are completed, you are not required to pay these ULIP charges. You have to follow the guidelines mentioned by the Insurance Regulatory and Development Authority on the maximum discontinuance charges that can be charged by the insured. Rider charges are charged when you get attached some additional benefits or riders with your policy. The miscellaneous charge is one of the major ULIP charges. This charge includes the expenses incurred by the insurance company to change the mode of the premium payment such as yearly to quarterly. The insurance company also takes administration charges from insured including the cost of the paperwork, the intimation of the premium, and more. It is charged every month for the administration of the policy.

If you are looking for answers to various questions including:

  • What are ULIP charges?
  • What are the major ULIP charges?
  • What is Premium allocation charge?
  • What is fund management charge?
  • What is policy administration charge?
  • What is mortality charge?
  • What is switching charge?
  • What is discontinuance charge or surrender charge?
  • What is partial withdrawal charge?
  • What is rider charge?
  • What is premium redirection charge?
  • What is the miscellaneous charge?

Then do scroll up the page in order to get answers to all your questions.