Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

8 Charges in ULIP That You Must Know

ULIPs come with additional charges that include partial withdrawal charges, premium redirection charges, rider charges, switching charges, and top-up charges.

  • 12,128 Views | Updated on: Jun 12, 2024

ULIPs, or Unit-linked insurance plans, are investment-cum-insurance products insurance companies offer. They provide a combination of life insurance coverage and investment opportunities in a single integrated plan. In ULIPs, a portion of the premium paid by the policyholder is allocated towards providing life cover, while the remaining amount is invested in various funds such as equity, debt, or balanced funds, based on the policyholder’s risk appetite and investment goals.

Key Takeaways

  • ULIPs offer combined investment and insurance benefits, with mortality charges being a crucial aspect.
  • ULIP charges include fees and expenses deducted from premiums or fund values, covering costs incurred by the insurer in policy management and benefit provision.
  • ULIPs include partial withdrawal, switching, top-up, premium allocation, fund management, and mortality charges.
  • Sales benefit illustration provides insights into the projected benefits and charges associated with the ULIPs.

The most attractive features of ULIPs include fund switching, partial withdrawals, premium redirection, etc. However, these features are often charred after a limited free usage. As a policyholder, you must understand what are the charges in ULIP plans and how they can be managed.

What are ULIP Charges?

ULIP charges refer to the various fees and expenses associated with Unit Linked Insurance Plans (ULIPs). These charges are deducted from the premium paid by the policyholder or from the fund value and cover various costs incurred by the insurance company in managing the policy and providing benefits. Some common ULIP plan charges include premium allocation charges, fund management charges, mortality charges, policy administration charges, switching charges, partial withdrawal charges, and surrender charges. Understanding ULIP charges is essential for policyholders to make informed decisions about their investment and insurance needs.

Types of ULIP Charges

ULIPs have a distinctive feature of deducting charges from the premiums policyholders pay. They aim to cover diverse expenses incurred by the insurance provider in policy management, such as administration costs, mortality charges, and fund management fees. Charges in ULIP plans are vital for investors seeking to make well-informed decisions regarding their investment choices. Let us take a look at different types of ULIP charges:

1. Partial Withdrawal Charges

As one of its features, you can partially withdraw from ULIP, before the completion of the lock-in period but with some additional charges. These charges vary depending on the insurer and the terms of the policy. For example, if a policyholder withdraws ₹10,000 from their ULIP investment, and the partial withdrawal charge is 2%, they would incur a withdrawal charge of ₹200.

2. Guarantee Charges

Some ULIPs offer guarantees on the invested amount or returns. Guarantee ULIP charges are levied to cover the cost of providing these guarantees, ensuring policyholders receive the promised benefits. For instance, if a policy guarantees a minimum return of 5%, the guarantee charge might be 1% of the total premium paid annually.

3. Goods & Services Tax

ULIPs are subject to Goods and Services Tax (GST) levied by the government on the premium amount and applicable charges. The GST rate may vary depending on the type of charge and the prevailing tax regulations. If the premium amount of a ULIP policy is ₹50,000, and the GST rate applicable is 18%, the GST charged would be ₹9,000.

4. Premium Redirection Charges

These ULIP charges apply when policyholders request to redirect future premiums from one fund option to another within the ULIP. The charges cover administrative costs associated with the redirection process. For instance, if a policyholder redirects their future premiums, and the redirection charge is ₹500, they would pay this amount for the administrative costs associated with the change.

5. Rider Charges

ULIPs offer optional riders for additional coverage, such as critical illness or accidental death benefits. Rider charges are incurred for availing these additional benefits, along with the base premium. For example, if a policyholder adds a critical illness rider to their ULIP policy, they might incur an additional monthly charge of ₹500.

6. Switching Charges

ULIPs allow policyholders to switch their investments between different fund options based on their risk appetite and market conditions. Switching charges are levied for each switch made, covering the administrative and transaction costs involved. Suppose a policyholder decides to switch their investments, and the switching charge is ₹100 per switch. If they make three switches in a year, they would incur a total switching charge of ₹300.

7. Top-up Charge

Policyholders can invest additional amounts over and above the regular premiums, known as top-ups. Top-up charges are applied to these additional investments, covering administrative and fund management expenses. Consider an example, if a policyholder makes a top-up investment of ₹20,000, and the top-up charge is 2%, they would pay a top-up charge of ₹400.

8. Premium Discontinuance Charge

If policyholders discontinue paying premiums before the completion of the lock-in period, premium discontinuance charges are levied. These ULIP charges are intended to cover the administrative and other costs incurred by the insurer due to the discontinuation of premiums. If a policyholder discontinues their ULIP policy, they may incur a discontinuance charge of 2% of the fund value.

9. Premium Allocation Charges

These ULIP charges are deducted from the premium amount paid by the policyholder before allocating the remaining amount to investment funds. It covers initial administrative expenses and commissions to agents. For instance, if a policyholder pays a premium of ₹50,000, and the premium allocation charge is 5%, ₹2,500 would be deducted as the premium allocation charge.

10. Fund Management Charges

Fund Management Charges (FMC) are levied for managing the investment funds within the ULIP. These ULIP charges cover the costs associated with managing the portfolio, including research, investment decisions, and fund administration. If the fund management charge is 1.5% annually, and the fund value is ₹1,00,000, the annual fund management charge would be ₹1,500.

11. Mortality Charges

Mortality charges are incurred for providing life cover or death benefits under the ULIP. It is based on the insured individual’s age, health condition, and sum assured, ensuring that the insurer can fulfill the life coverage obligations. For instance, if the sum assured is ₹10,00,000, and the mortality charge per ₹1,00,000 of the sum assured is ₹50 annually, the mortality charge for the policy would be ₹500 annually.

12. Policy Administration Charges

Policy Administration ULIP charges cover the administrative expenses incurred by the insurer for servicing the ULIP policy throughout its tenure. It includes costs related to policy maintenance, record-keeping, and customer service. For example, if the policy administration charge is ₹100 per month, the policyholder would pay ₹1,200 annually.

13. Miscellaneous Charges

These are additional charges not covered under specific categories, such as communication charges, service tax, or other regulatory charges imposed by the insurer. If there is a communication charge of ₹20 for sending policy statements, the policyholder would pay ₹20 for each statement sent.

14. Policy Surrender/Discontinuity Charges

If policyholders surrender their ULIP before the completion of the lock-in period or discontinue paying premiums, surrender or discontinuity charges are applied. These ULIP charges aim to recover the administrative and other expenses incurred by the insurer due to the premature termination of the policy. For instance, if the surrender charge is 5% of the fund value and the fund value is ₹1,00,000, the surrender charge would be ₹5,000.

Understand the Charges under Your ULIP Policy

ULIP charges under the ULIP policy are necessary for maintaining the policy for the maximum benefits. You must consider the following as essential parts of ULIP for easy maintenance of your policy:

Sales Benefit Illustration

Sales Benefit Illustration is a document provided by insurance companies to potential ULIP buyers. It outlines the projected benefits and ULIP charges associated with the policy, helping the customer understand how the policy works, including the premiums, investment returns, and charges over the policy term. It typically includes details such as the sum assured, premium payment term, assumed investment growth rate, and various charges like premium allocation, fund management, and mortality charges. This illustration assists the buyer in making an informed decision by providing a clear picture of the expected outcomes and costs associated with the ULIP.

Product Brochure

A Product Brochure is a comprehensive document provided by insurance companies that contains detailed information about the ULIP product being offered. It includes key features, benefits, terms and conditions, investment options, fund performance, ULIP charges, and other relevant details. The brochure helps potential customers understand the product’s structure, benefits, and risks before purchasing.

Advisor

An advisor in the context of ULIPs refers to a financial professional or insurance agent who assists individuals in understanding the various aspects of ULIP policies and helps them make informed decisions based on their financial needs and objectives. The advisor provides personalized advice, recommends suitable ULIP products, explains the features and ULIP charges associated with each policy, and guides clients through the application and documentation process. They play a crucial role in educating customers about the risks and benefits of ULIPs, ensuring transparency, and helping them achieve their long-term financial goals.

Bottom Line

After learning everything, there is to know about mortality charges in ULIP and knowing how to calculate mortality charges in ULIP, it appears to be a great investment choice that provides you with two-in-one benefits. Besides, the eight most essential types of charges in ULIP are apparently 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 this, it is essential to know the tax benefits of investing in ULIP under Section 80C of the Income Tax Act.

From partial withdrawal charges to policy surrender fees, each charge serves a specific purpose in maintaining the policy and providing benefits. Furthermore, understanding the basics of ULIP charges empowers investors to make informed decisions aligned with their financial goals. Utilizing resources such as sales benefit illustrations, product brochures, and seeking guidance from advisors can enhance one’s understanding of ULIP charges and facilitate mindful investment choices. Ultimately, ULIPs offer a versatile investment route with dual benefits, but it is crucial to remain aware of the varying charges across different insurance providers.

FAQs on ULIP Charges

1

What are the charges associated with ULIPs?

There are several charges associated with ULIPs, including premium allocation charges, fund management charges, policy administration charges, mortality charges, and surrender charges. These charges are deducted from your premium and investment amount.

2

What are FMC charges in ULIP?

FMC charges, or Fund Management Charges, are fees levied by insurance companies for managing the investment portfolio within ULIPs. These charges cover the costs associated with fund management, including research, investment decisions, and portfolio administration.

3

What is a premium allocation charge in ULIPs?

The premium allocation charge is a one-time fee that is deducted from your premium when you invest in a ULIP. This charge is usually a percentage of your premium amount and covers expenses such as agent commission, underwriting costs, and marketing expenses.

4

What is a fund management charge in ULIPs?

A fund management charge is a fee that is charged by the insurance company for managing the funds invested in your ULIP. This charge is usually a percentage of the total assets under management and is deducted on a daily basis.

5

What is a surrender charge in ULIPs?

A surrender charge is a fee that is charged by the insurance company if you surrender your ULIP before the completion of the lock-in period. This charge is usually a percentage of the fund value and is designed to discourage premature withdrawals.

6

What is a mortality charge?

Mortality charges are fees incurred for providing life cover or death benefits under ULIPs. They are based on factors such as the insured individual’s age, health condition, and sum assured, ensuring the insurer can fulfill life coverage obligations.

7

What is a fund switching charge?

Fund switching charges apply when policyholders reallocate investments from one fund option to another within a ULIP policy. These charges cover administrative and transaction costs associated with the switching process.

8

How do I minimize the charges in my ULIP?

To minimize the charges in your ULIP, you should choose a plan with lower charges, invest for a longer period of time, and avoid premature withdrawals. Additionally, you should compare the charges and features of different ULIPs before investing to ensure that you are getting the best value for your money.

9

What are the 5 charges of ULIP?

The five primary charges of ULIPs include Premium Allocation Charge, Policy Administration Charge, Mortality Charge, Fund Management Charge, and Surrender Charge. These charges cover various expenses incurred by the insurance company in managing the policy and providing benefits.

10

How are ULIP charges deducted?

ULIP charges are typically deducted from the premium paid by the policyholder or from the fund value. The deduction process ensures transparency in cost deduction, with charges being subtracted before allocating the remaining amount to investment funds or policy maintenance.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

Kotak e-Invest

Download Brochure

Features

  • Return of Mortality Charges*$
  • Enhanced Protection
  • Multiple Plan Options
  • Zero Premium Allocation Charges
  • Tax Savings^

Ref. No. KLI/22-23/E-BB/521

T&C