A lot of people start planning their investments early in life to ensure they achieve their financial goals on time. As a wise investor, you would certainly want to set aside a part of your monthly income so that you can achieve such desired objectives. One such popular form of investment is Unit-Linked Insurance Plan.
Unit-Linked Insurance Plans (ULIPs) have gained popularity over the last decade as they help you build your wealth while also providing life insurance coverage. The insurance premium that you pay towards your ULIP is divided into two parts. The first part of the premium goes into your insurance cover while the second part gets invested in the market.
The investments in ULIP are market-linked, and hence the returns also depend on the existing market conditions. However, a major advantage offered by ULIP over other investment options is the flexibility in investment.
Depending on your risk appetite, you can shuffle your investment between debt, equity or balanced funds. This flexibility offers an advantage to make sound investment decisions in case of any market fluctuations and secures your ULIP returns.
Just like any other investment instrument, ULIPs too have charges associated with it. Here, we will be discussing what are the charges in ULIP.
The standard ULIP charges that you have to look out for are as follows:
Premium Allocation Charges in ULIP
Let us understand what are premium allocation charges. A premium allocation charge in ULIP is a percentage of the premium amount paid during the first year of a ULIP plan.
Since a part of your ULIP investment goes into a life cover, these percentage deductions help cover the initial expenses incurred by the ULIP provider to allocate the policy. Premium allocation charges in ULIP cover expenses for underwriting, insurance agent’s commission, medical checkup costs, etc.
Different medical providers might have a different percentage as their premium allocation charges in ULIP. The remaining premium amount after the deductions is then utilised to make your investments.
For instance, suppose your total premium is ₹60,000 and the insurance provider charges a premium allocation charge of 20%. Then, Rs. 12,000 will be deducted from the premium while the remaining Rs. 48,000 will get invested in market funds.
Fund management charges in ULIP are levied for managing your investment funds. These fund allocation charges are a percentage of the asset values. The IRDA (Insurance Regulatory and Development Authority) has put a cap on the percentage for fund management value. Insurance providers cannot charge more than 1.35% of the fund value per annum. Fund management charges are deducted before computing the net asset value of the fund.
Every ULIP policy assures a fixed sum to the policyholder’s nominee in the case of his/her demise during the policy term. Mortality charges cover the cost of this death coverage for the insurer.
Depending on the policyholder’s health, age and gender, the mortality charges are determined. These charges are deducted every month from each of the fund(s) the policyholder has selected to invest in.
These policy administration charges in ULIP are directed to manage the administrative expenses for maintaining the ULIP policy. These charges cover expenses for paperwork, sending monthly/quarterly/annual updates, premium intimation, etc.
Depending on the company policies of your insurance providers, these charges may remain steady or vary during the ULIP policy tenure.
Some ULIP providers offer a facility to make partial withdrawals, even during the lock-in period of a ULIP’s term. However, some charges are deducted from the amount as a form of penalty for partial withdrawals. These deductions are called partial withdrawal charges.
As mentioned before, ULIPs allow flexibility to switch between equity, debt and balanced funds, depending on your risk appetite. However, every switch that you make attracts a charge between ₹100-₹500, depending on the policies of your insurance provider.
In case you want to redirect your future premiums towards a less risky fund option, you will have to pay some premium redirection charges according to the policies stated by the insurance provider.
For instance, suppose you have been directing your money towards fund X, but want your future investment to go into fund Y. You can easily redirect your future premiums into fund Y, without affecting your existing investments in fund X by paying these charges.
In case of any urgent financial situation, you may decide to opt for premature encashment of the units, either through partial or complete policy surrender.
These charges are calculated as a percentage of the funds or the annual premium amount. As per the IRDA, the surrender charges cannot exceed fifty basis points of the fund value, per annum
Rider charges are levied when you decide to take any extra benefits or enjoy added features that are not included in your original ULIP plan.
Before directing your investment into different market funds, certain service taxes are deducted from your premium amount. The investment part of your premium gets directed to the market-linked instruments only after making service tax and other deductions.
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 Bajaj 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 Life ULIP plans available on Bajaj Markets and fulfil your long term financial goals conveniently.
There are different types of Bajaj ULIPs available on Bajaj Markets that offer you an option of choosing from the top-rated funds across the industry. To know more about how you can explore more avenues for long-term wealth creation with attractive Bajaj ULIP plans, visit Bajaj Markets!
The different types of charges in ULIP are premium allocation charges, fund management charges, mortality charges, policy administration charges, partial withdrawal charges, switching charges, premium redirection charges, policy surrender/ discontinuity charges, rider charges, services tax deductions, miscellaneous charges.
In case of any emergency financial expenses, you may decide to opt for premature encashment of the units. This can be either through a partial or complete surrender of the policy. The policy surrender charge in ULIP is calculated as a percentage of the funds or the annual premium amount.
No, the ULIP maturity amount is exempt from income tax under Section 10(10D) .
Yes, you can withdraw from ULIP after 5 years. However, it is recommended that you stay invested for the long-term, i.e. upwards of 10 years, to reap the full benefits of the investment.
ULIP stands for Unit-Linked Insurance Plans.