9 Crucial ULIP Charges To Know About Before Investing in One

Irrespective of the stage of your life, investment in ULIP is one of the best options to consider. Amongst the different types of investment tools available today, if ULIPs interest you, there are a few things which you must consider before investing in the best ULIP Plan in India:

  1. Analyze your risk appetite
  2. Choose long-term investment
  3. Opt for maximum sum assured
  4. Check the premium payment and lock-in period
  5. Check the ULIP charges, which might affect your funds the most

Let’s begin with understanding what is the ULIP full form? It stands for Unit Linked Insurance Plan, which is an instrument providing life coverage for a partial amount and investing the rest in the market linked instruments, like, debt, equity or a mix of them to earn a fair amount of returns. The amount can be used to attain long term goals, including retirement planning, children’s higher education, etc.

Before finally choosing any ULIP Policy, you should be aware of these charges in detail:

  • Premium Allocation Charge

The insurance company levies these charges at the time of issuance of the policy. It is an upfront charge which is deducted from the first premium amount. It includes underwriting charges, agent’s commission, medical expenses, etc. It is usually a percentage of the premium amount—the amount remaining after the deduction is invested in your fund.

  • Fund Management Charges

As a ULIP policy provides you with the privilege of life coverage and earning returns on the market-linked securities, experts are involved in managing your finances. Fund management experts direct the investment of these finances such that the insured gets maximum returns on the invested amount, bases on their financial goals. According to IRDAI, insurers can charge a maximum of 1.35% of the fund value per annum.

  • Mortality Charges

As the ULIPs provide life cover too, they levy mortality charges to offer financial compensation to the family after the demise of the insured. These charges are calculated after considering various factors like age, health risk, etc.

The new policies have started to pay back this amount at the time of maturity, which was paid previously during the tenure of the policy. While making the policy more cost-effective, they even increase the corpus of the fund.

  • Policy Administration Charges

These charges are levied to compensate for the cost incurred for maintaining the insurance policy, like record-keeping, paperwork, etc. The insurance provider deducts the amount by redeeming units of the market securities from the policyholder’s account at the prevailing price in the market.

  • Partial Withdrawal Charges

Once you start investing ULIPs, there’s a lock-in period of 5 years. No withdrawal can be made before that. But, after the period of 5 years, an individual can make partial withdrawals from time to time. But, this facility doesn’t come without a charge. For making partial withdrawals, you need to pay an amount, which varies from insurer to insurer.

  • Fund Switching Charges

As mentioned previously, investing in ULIPs is highly flexible. While it provides you with the option to invest in different market-linked securities like debt, equity, etc., it also allows you to switch your funds from one instrument to another.

You can change the allocation of funds depending on the prevailing market conditions and optimize your returns to suit your current requirements. The facility of fund switching also comes with a charge, depending on the ULIP type and the insurer.

  • Premium Redirection Charges

To redirect your future premium payments to a different fund option, which can be due to any reason, premium redirection charges are imposed. People usually redirect funds to switch between options with varying degrees of risk. This is similar to fund-switching charges.

  • Premium Discontinuance Charges

As there’s a lock-in period of 5 years for a ULIP plan in India, an individual cannot make any withdrawals before it ends. If the policyholder stops paying a premium due to any reason or surrenders to pay the same, the charges are imposed on the policyholder.

The amount depends on the policy year when you discontinue the premium payment. As per IRDAI Rules, the maximum charge is Rs. 6000 for the first year, decreasing as the number of years increases, like, Rs. 5000 in the second, Rs. 4000 in the third and so on.

  • Rider Charges

If you add benefits to your basic plan, rider charges will be levied. The riders for ULIP plan in India may include critical illness insurance rider, accidental death rider, family income benefit rider, etc.

Choose Wisely Before Investing Your Hard-Earned Money

It is always best to be well-informed about different ULIP plans and fund options before finally choosing one. These charges can make a great deal of difference, as they affect the price of the policy.

They may vary across insurance providers and ULIP policies. Well-known insurance providers like Max Life Insurance can be trusted to disclose the ULIP charges at the time of purchase. As the policyholder, transparency in money matter is a priority, so make sure you carefully explore your choices.