ULIP - Charges You Must Know

At a time when market investments and mutual funds were dominating individual portfolios, ULIP investment gained the limelight by offering the promise of potentially high returns along with the benefit of a life cover. Investing in a ULIP Plan enables you to explore capital market investments with limited risks while bestowing the benefit of a life cover. To help you make an informed investment decision, here’s everything you need to know about ULIPs and the various charges involved:- 

What are ULIPs?

 

A Unit Linked Investment Plan or ULIP is a unique investment avenue that offers the dual benefit of life insurance along with market-linked investments. As a ULIP policyholder, you have the freedom to invest in different types of investment instruments such as stocks, bonds as well as mutual funds. Making the right investments is the key to financial well-being. At a time when market investments and mutual funds were dominating individual portfolios, ULIP investment gained the limelight by offering the promise of potentially high returns along with the benefit of a life cover. Investing in a ULIP Plan enables you to explore capital market investments with limited risks while bestowing the benefit of a life cover.

 

ULIP Benefits

 

Today, ULIPs have become one of the most popular investment avenues in the market. ULIP plans offer several unique benefits which make it one of the most promising investment avenues in the market today. Here are some of the most important benefits of ULIP plans:-

  • Market linked returns

  • Flexibility to switch funds according to changing investment needs

  • Lucrative tax benefits

  • Goal-based savings

  • Transparency

 

What are the charges associated with ULIPs?

 

Before making ULIP investments, it’s important to understand all the various charges associated with it. ULIPs are subject to various risk factors, and the returns are directly proportional to the market conditions. Hence it’s essential to understand the intricacies of all the charges you will have to pay over the entire tenure. Here we will explore all the essential ULIP charges:-

  1. Premium Allocation Charges

The premium allocation charges are calculated as a percentage of the first year premium charged by the insurer before allocating the policy. These are the initial expenditures incurred by the insurer at the time of policy issuance. The allocation charges include expenses such as cost of underwriting, agent’s commission, medical expenses etc. Once these charges are deducted, the remaining corpus is invested in the chosen fund. For e.g., if your total premium is Rs. 50,000 and premium allocation charge is 20 per cent; then Rs. 10,000 will be deducted from your premium as allocation charges. Hence, the final amount that will be invested will be Rs. 40,000.

  1. Administration Charges

The Administration charge is a monthly fee charged by your insurance company for the administration of your policy. The units from each of the funds you have selected are cancelled proportionately to deduct the administration charges. The administration charges can either stay fixed throughout the year or vary at a predefined rate according to the terms and conditions of the ULIP policy.

  1. Fund Management Charges

Fund management charges refer to the charges levied for managing your ULIP funds. It is generally charged as a percentage of the ULIP fund’s total value and is deducted before computing the net asset value of the fund. As per IRDAI regulations, fund management charges should not exceed 1.5% of the total fund value.

  1. Surrender or Discontinuance Charges

Surrender/Discontinuance Charges is levied when the insurer chooses to surrender the ULIP plan prematurely. According to IRDAI regulations, an insurance company can only recover the incurred acquisition cost in the event of discontinuance of the policy. This charge is levied as a percentage of the fund value and premium. Generally, the ULIP surrender charges for the first four years will range from Rs 1000- Rs 3,000, depending on the premium paid. Once the fifth year is complete, no surrender charge will be levied on withdrawal.

  1. Partial Withdrawal Charges

As the name suggests, partial withdrawal charges are only levied when the insured chooses to make a partial withdrawal. However, it is important to note that partial withdrawal is only allowed from the third year of maturity.

  1. Mortality Charges

The mortality charge refers to the charges imposed by the insurer for providing a death cover. It is calculated after considering factors such as the insured individual’s age and health risk.

  1. Switching Charges

Switching charges refers to the fees charged for switching between different fund options. All ULIP investors can make a certain number of free switches every year. However, if the number of switches exceeds this limit; the switching fee will be charged. Generally, the switching charges vary between Rs 100-500 per switch, subject to the insurer’s charge structure.

  1. Premium Redirection Charges

Premium redirection charges refer to the charges levied for redirecting future premiums to other risky fund options, without changing the existing fund's structure. Hence, this fee will only be levied if you redirect your future premiums.

  1. Guarantee Charges in ULIP

The insurance company levies guarantee charges only on high-NAV guarantee ULIPs. This fee is paid to ensure guaranteed ULIP returns. For instance, if a ULIP promises 120% returns after a period of 10 years, you will need to pay guarantee charges for the same.

 

Understanding the various charges associated with ULIPs will help you invest with confidence. At Finserv Markets, we list out all the ULIP related charges in the policy documents so that you don’t get any unpleasant surprises later. So don’t think twice, invest in Bajaj Allianz ULIP plans available on Finserv Markets and fulfill your long term financial goals conveniently.

Head to Finserv Markets to read more about what is ULIP and what are the types of ULIPs.

 

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