What are the Charges Levied on ULIP?
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What are the Charges Levied on ULIP?

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  • 16th Mar 2022
  • 222

What are the Charges Levied on ULIP?

Unit Linked Insurance Plan (ULIP) is an investment product having an insurance plan linked to it. In general, while opting for any plan, as an investor you should be careful and aware of the charges that are being levied or will be levied on the insurance plan. The best thing about Unit Linked Insurance Plan (ULIP) is that the charges are upfront and you are well aware of it while opting for a ULIP investment plan. However, before discussing the charges levied on ULIP, it is important to know ULIP meaning in brief.

ULIP Meaning

Unit Linked Insurance Plan is a financial product that offers investors a combination of insurance and investment in one policy. The ULIP policyholders have to pay regular premiums, that cover both insurance needs and investment. There is a lot that can be discussed to understand ULIP, but in short, it is a combination of investment and insurance.

What are the charges levied on ULIP?

Based on IRDAI guidelines, there are different types of charges levied on ULIP. These charges are broadly divided into different parts. You can go through the policy documents, compare them with other ULIP plans before you choose the right ULIP. This article briefly discusses these 6 types of charges in ULIPs.

6 types of charges in ULIPs

1. Premium Allocation Charge

Also known as PAC, the premium allocation charge is deducted as a fixed percentage charge of the premium received. The PAC is levied at a higher rate in the initial years of the policy. This charge in most ULIP policies includes expenses for initiation, renewals, and commissions.

2. Mortality Charges

Mortality Charges in ULIP are levied to cover the cost of the insurance coverage promised as per the insurance plan. These charges are dependent on various factors like amount of the coverage (assured sum), age of the policyholder, among others. These charges are deducted on a monthly basis. Mortality charges in ULIP are proportionally deducted from each of the funds selected.

3. Fund management charge

Fund management charge (FMCs) is the charge levied by the insurance provider for managing various ULIP funds. This charge is deducted before calculation of the Net Asset Value (NAV), and is adjusted daily based on the NAV. The maximum amount allowed to be charged for this FMC is 1.35% per annum of the fund and is charged daily. The FMCs vary on different funds.

4. Policy administration charge

Policy administration charge is different from the Premium Allocation Charge (PAC). This is a monthly fee charged for the administration of policy.

5.Partial withdrawal charge

ULIPs allow you to withdraw funds from the policy partially before maturity based on policy guidelines. However, for a partial withdrawal, you have to pay one of the ULIP plan charges called partial withdrawal charge. This charge may vary from plan to plan.

6. Fund switching charge

As ULIPs allow you the switch between funds to improvise on investment, you have to pay a fee, based on the policy guidelines. Certain policies allow a certain number of switching between funds each year. However, if you exceed the limit, a fixed charge can be levied per switch.

There may be other types of charges in ULIPs that may be levied based on the service availed. Do remember, not every insurance company levies these charges. There are many insurers who waive off ULIP charges making these policies more accessible for policy buyers. Thus, it is highly recommended to read policy documents carefully to understand these different types of fees levied on your ULIP policy.

- A Consumer Education Initiative series by Kotak Life

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