When it comes to ULIPs, there are several charges associated with the plan that first-time buyers are unaware of. As the insurance plan has a transparent policy, you can easily learn about all the applicable fees that are deducted from the premium. So, let’s go through the top 9 ULIP charges in detail that you must know as a policyholder.
9 Key Charges Associated with ULIP Policies
Here are some common types of ULIP fees that you need to pay while investing in such an insurance policy:
Mortality charges
Along with an investment component, you also get a risk cover to protect your loved ones financially. Therefore, a mortality fee is charged to offer a life cover under the ULIP policy. The mortality charges depend on various factors including your health, gender, age, etc. So, this is one of the expenses of purchasing ULIP that you need to pay once per month.
Premium redirection fees
If your current fund type is risky and volatile, you can choose to redirect your future premiums to a different fund type. Doing this attracts an additional charge, though some initial redirections are free of cost. Thus, make sure to use this lucrative feature wisely before the charges come into the picture.
Fund management charges
Fund Management Charges (FMC) is an expense that you need to pay for the management of your investment fund. The FMC is applicable on the fund value and is deducted before estimating the Net Asset Value (NAV) of your fund. According to the IRDAI, this charge must not be more than 1.35% of the fund value per annum.
Surrender charges
It is common for policyholders to discontinue their Unit-Linked Insurance Plan before the completion of the five-year lock-in period. You can easily surrender your policy prematurely without any troubles. However, there is a fee applicable for surrendering your plan early. In case you want to exit the ULIP plan after the lock-in is completed, then no surrender fees are charged.
Fund switching charges
Under ULIPs, you get the opportunity to invest in market-linked instruments such as equity funds. However, in case your risk appetite changes, the insurance provider enables you to switch fund options and opt for debt funds. Initially, you get a couple of free switches without any additional charges. On exhausting these, you must pay a flat fee set by your insurer to change your fund type.
Premium allocation charges
The Premium Allocation Charge (PAC) is a set percentage charged on the premium paid. This fee is deducted from the premium before allocating the corpus towards the fund investment. Premium Allocation Charge is higher on policy inception, but the impact slowly lowers as you move closer to the plan maturity. Such a fee can vary based on factors like the policy purchase mode, premium amount, premium payment frequency, single or regular premium, etc. Ensure to check out your returns with the help of a ULIP calculator to decide the right premium amount.
Policy administration charges
The insurance provider incurs some expenses for administering and maintaining your ULIP policy, sending premium intimations and other miscellaneous activities. For this, you must pay a policy administration charge per month. The fees can be a percentage of the fund value, or a flat fee could be levied. Therefore, it is recommended to check out how your insurer levies this fee.
Rider charges
Riders are additional components that you can purchase for extra coverage. These add-on covers come at a nominal rate over and above your ULIP premium. So, if you were to buy any riders, then you need to pay an extra sum apart from your policy premium.
Partial withdrawal charges
Though no withdrawals are allowed before the five-year lock-in period gets over, you can make partial withdrawals after it. It could be due to some financial requirement or an emergency. A few partial withdrawals may be permitted without any additional charges. But on using up the free chances, a partial withdrawal charge shall be levied. Ensure to confirm the number of free chances available so as to plan your payout withdrawal throughout the tenure.
With this, you are now aware of what are ULIP policy charges that you must pay from your premium except for rider charges. To make the most of your ULIP investment, estimate your long-term returns with a ULIP calculator and set your premium accordingly.
