A Guide To The Types of Fees And Charges Of ULIPs

Published On Jun 11, 2021 3:45 PM By InsuranceDekho

Unit Linked Insurance Plans are a popular form of insurance that also facilitate wealth creation. They provide policyholders with a chance to invest in a variety of market-linked funds. The choice of this fund lies with the policyholder. They can choose any of the available options according to the risks they want to undertake and their wealth-creating ambitions. 

ULIPs involve multiple charges. Not only does this confuse policyholders, but also creates the illusion that these insurance plans cost a lot. In reality, there is nothing as such. It is only the lack of clarity regarding the charges that leads to such speculations. Here is a guide to the types of fees and charges of ULIPs.

Types of Charges in ULIPs

The following are the various fees and charges of ULIPs. These are the most important ones and there may be other miscellaneous charges involved. 

1. Premium Allocation Charges

This includes various other charges such as agent commissions, medical charges and other miscellaneous charges that are applicable during the first policy year. The premium allocation charges for any ULIP are a percentage of the premium amount paid in the first year. 

2. Fund Management Charges

ULIP funds are divided into investment and insurance components. This category of fees is charged for efficient management of your funds. It is calculated against the net value of the fund and must not be more than 1.5% (as regulated by the IRDA).

3. Administration Charges

The insurer charges this fee monthly for the administration of the respective ULIPs. They are collected in the form of unit-cancellation from the funds selected by the policyholder. Administration charges for ULIPs are usually the same but might differ in some cases.

4. Mortality Charges

Mortality charges are imposed for providing death cover through the insurance component of the ULIP. This type of charge depends on the age, health conditions and other risk factors of the insured individual. 

5. Fund Switching Charges

ULIPs allow policyholders to switch from one investment fund to another. It is allowed anytime after the lock-in period and there are several free switches allowed. However, after that quota, there are charges levied for switches and this amount differs between insurance companies.

6. Rider Charges

There are multiple riders that are available to be added with ULIPs to enhance their basic cover. However, there are charges involved if you decide to add a rider to your pre-existing ULIP.

7. Guarantee Charges

ULIPs do not usually have any fixed returns and it all depends on the market trends for the funds you have invested in. However, ULIPs with high-NAV guarantee levy guarantee charges for a guaranteed return. 

8. Surrender Charges

If you discontinue your ULIP before its maturity, there are surrender charges that are levied. There are no surrender charges after 5 years. The surrender charges are calculated as a percentage of the net fund value and the premium amounts. 

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.