8 Charges in ULIP You Must Know
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8 Charges in ULIP That You Must Know

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  • 13th Apr 2022
  • 112

8 Charges in ULIP That You Must Know

Unit Linked Insurance Plans are a type of insurance plans that helps you reach your financial objectives by generating wealth through market-linked investments. Depending on your risk tolerance, you may distribute your money among debt, equities, or balanced funds using these instruments. This allows you to earn market returns that outperform inflation.

ULIP is like a mutual fund with an insurance cover added to it. However, there are some charges involved in ULIPs, unlike mutual funds, which have a single consolidated Total Expense Ratio (TER).

Types of Charges In ULIP

  • Premium Allocation Charge

The Premium Allocation Charge (PAC) is a predetermined charge in ULIP policy. The percentage of the premium collected is normally imposed at a greater rate in the first few years of a policy. The original and renewal charges and the intermediary’s compensation expenses are usually included in this price.

The PAC is a percentage of the premium deducted, and the remaining funds are utilized to obtain units at the current Net Asset Value (NAV).

  • Fund Management Charges

The price levied by the insurance provider for managing multiple funds in ULIP is known as the Fund Management Charge (FMC). It is a fee for fund management and is subtracted before reaching the NAV. Therefore, on a routine basis, the FMC is modified from NAV.

  • Discontinuance Charges in ULIP
8 charges in Ulip that everyone must know

ULIP discontinued charges are imposed when an investor prematurely surrenders ULIPs. The minimum lock-in term for these investment programs is five years. ULIPs, on the other hand, can be surrendered before the lock-in term expires in the event of unforeseen circumstances that prevent regular premium payments. The surrender charge, which is computed as a percentage of the yearly premium amount, will be imposed in this situation.

  • Mortality Charges

Mortality costs are the ULIP plan charges for providing life insurance to the insured. These fees are determined by various characteristics, including the insured’s age, health condition, gender, and so on. Mortality costs are assessed every month and may alter or vary depending on the insurer’s criteria.Read more about mortality charges in ULIPs here

  • Fund Switching ULIP Charges

Switching is the process of moving money or investments from one option to another. A limited amount of fund switches may be permitted without charge each year, with other switches incurring a fee of ₹100 or ₹250 for each switch.

  • Partial Withdrawal Charges

ULIPs allow for partial withdrawals of money. Some plans allow unlimited partial withdrawals, while others limit them to only 2-4 each year. These withdrawals might be free up to a specific point before costing ₹100 apiece as part of the ULIP policy charges, or maybe they’re free for an infinite series of withdrawals.

  • Partial Withdrawal Charges

The reimbursement of the charges incurred by the insurer is known as administration cost in ULIP. These are monthly fees that may or may not be related to the insurer’s standard paperwork or activities. Administration costs are imposed by cancelling a proportionate number of the investor’s units from each fund.

  • Premium Discontinuance Costs

You can discontinue paying your premiums before the five-year lock-in term expires. When you stop paying your premiums, your money will be put into a Discontinuance Fund. As stated in the policy terms, a Premium Discontinuance fee may be charged as part of ULIP plan charges. This is calculated as a percentage of the fund’s worth or the premiums.

To summarise, after going over the eight most essential types of charges in ULIP, it is apparent what to look out for when purchasing ULIP insurance. However, it is important to remember that these ULIP charges differ from one insurance company to the next.

Alongside, it is essential to know the tax benefits of investing in ULIP under Sec 80C of the Income Tax Act.

- A Consumer Education Initiative series by Kotak Life

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