ULIP charges you should be aware of

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Unit-Linked Investment Plans (ULIPs) are a category of life insurance policy that offers life cover along with as an investment-cum-savings plan with healthy returns. This is an excellent long-term investment instrument. The main feature of ULIP plans is market-linked returns. So, there are also various market associated risks factors. ULIPs are offered by various insurance companies.

ULIP charges

There are several types of small charges associated with ULIPs. The charges are to be evenly distributed through the lock-in term. If you are planning to invest in ULIP, it is important to know about this. Here are the major ULIP charges:

Premium allocation charges

When the ULIP policy is issued there are various tasks the insurer undertakes, such as underwriting the policy, medical tests, commission charges, etc. All these payments are one-time and need to be made in the first year. The insurer deducts them from the first-year premium.

Administration charges

These charges are towards the servicing and maintenance of your policy such as, cost of paperwork, workforce, and other similar expenses. They are deducted on a monthly basis.

Mortality charges

Mortality expenses are charged towards providing you a life cover. These expenses vary with age and are deducted on a monthly basis.

Fund management charges

Depending on the funds chosen by investors, a portion of ULIP premium is invested in various equity funds, debt funds or a mix of both. The fund management charge is for managing these investments in order to offer investors potentially higher returns.

Switching charges

Investors are allowed to change the fund where their premium is invested a couple of times every year without a charge. Post the free-limit exhausts, every switch attracts a charge as per the terms and conditions.

Discontinuance charges

If the ULIP plan is surrendered prematurely before the lock-in period, a discontinuance charge is levied. This is charged as a percentage of the fund value or as a percentage of the premium.

Partial withdrawal charges

Investors have an option to prematurely withdraw money from the ULIP plan after the first 3 years. However, early withdrawal attracts some penalties.

Rider charges

Riders provide an additional protection cover over the base life cover. Rider charges are deducted from your premium.

Premium redirection charges

Insurers levy premium redirection charges if you redirect your future premiums to another less risky fund options, without changing the existing fund structure.