What Are The Charges That You Have To Pay For ULIPs?


ULIPs, or Unit Linked Insurance Plans, provide investors with the dual benefits of investment and insurance. The ability to create wealth through market-linked financial instruments makes ULIP investment plans quite popular with investors.

Among life insurance policies, ULIPs are the most versatile and complex products you must understand thoroughly before you decide to invest in them. One of the most important aspects to understand is their fee structure.

The charges levied on a Unit Linked Insurance Plan vary from one insurance provider to another. However, since most of these are capped by IRDAI (Insurance Regulatory and Development Authority of India), their impact on your ULIP returns is minimized in the long run. Let us see what these charges are:

Premium Allocation Charges

Before the ULIP policy is allocated to the policyholder, the insurer charges a premium allocation charge. This is a percentage of the premium paid, charged at the time of allocating the policy and is taken for the expenses that the insurance company incurs while issuing the policy. The costs covered under these charges are the medical costs, commissions, underwriting cost, etc.

Administration Charges

The insurance company administers your policy and charges you for the same every month. These administration charges may either remain the same throughout the policy term or may also vary at a predefined rate. These are levied for the paperwork of your policy, sending reminders for premium payment, etc.

Fund Management Charges

These are the charges that the policyholder needs to pay the insurer for managing their funds. The insurer charges the insurer a small percentage of the total fund value. These charges are deducted before giving out the fund’s NAV (net asset value). As per the IRDAI regulations, insurance companies cannot charge more than 1.5% as fund management charges.

Surrender Charges or Discontinuance Charges

The policyholder will bear the surrender charges when the ULIP is surrendered or discontinued before the date of maturity. As per the regulations set by IRDAI, the insurance provider can only charge the policyholder for the acquisition cost when the policy is discontinued before maturity. The charge levied for this can range between Rs. 1000 to Rs. 3000 and can vary from provider to provider. However, no charges for the surrendering of the policy are charged after the end of the 5-year lock-in period.

Charges for Partial Withdrawal

Investors have the provision to partially withdraw from their ULIPs from the third year itself, subject to the specified terms and conditions. However, insurance companies may charge the investors with partial withdrawal charges for the such withdrawals.

Mortality Charges

These charges are levied for providing the death cover to the policyholder. They are calculated based on the policyholder’s age and overall health condition.

Fund Switching Charges

A ULIP investor is provided with an option to switch funds during the term. While there may be a limited number of free switches provided per year, exceeding that can attract the fund switch charges. Most insurance companies charge approximately Rs. 100 – Rs. 500 for every fund switch. It varies from one insurance provider to another.

Premium Redirection Charges

When the policyholder redirects the upcoming premiums to other fund options without changing the existing fund structure, the insurer provider may charge them with a premium redirection charge.

Rider Charges

Some ULIPs offer you the option to add riders to your plan, which make the plan more comprehensive. The charges levied for these riders are termed as rider charges. These are the charges that the insured needs to pay when they choose additional benefits on their existing/base plan.

The Miscellaneous Charges

This can be considered a smaller element compared to the others on the list. Every ULIP comes with miscellaneous charges, for example, charges incurred when there is a change in the premium payment mode, policy term, sum assured, etc.

Though a ULIP is a very lucrative investment option, it is always advised to know about all the charges you might have to pay in the future. Doing this saves you from unwanted hassles, and you can plan your investment accordingly. Also, since it may impact your returns in the short term, you should be in the loop about all these charges beforehand.

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