Investment Plans 546 views August 18, 2021

Unit-linked Insurance Plans (ULIPs) help people grow their money and protect their loved ones’ future in case of their demise during the policy term. These plans provide benefits like regular savings, protection to your family, the flexibility of investment, tax benefits, long-term investment, etc. However, people often ask about the different charges they need to pay during the policy term before choosing the ULIP. Understandably too, as these charges can impact the investment value that you would get at maturity.


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On this page, we will talk about the charges so that you can understand ULIP even better. Let’s get started!

Let’s Understand the Different Charges of Unit-linked Insurance Plans in Detail

Unit-linked Insurance Plans have varying charge structures that we have discussed below for you to look at.

Premium Allocation Charges

Insurers deduct the premium allocation charges upfront from the premium of your policy. These charges are a definite percentage of the first premium and include the cost of the underwriting process, medical examination (if any), distributor fees, agent commission, etc. The insurer invests the remaining premium amount in the fund/s of your choice.

Let’s say the premium allocation charge is 10%, and your premium is INR 30,000. So, the insurer will deduct 3,000 (10% of 30,000) as the premium allocation charges, and INR 27,000 (30,000 – 3,000) will be invested in the chosen fund.

Policy Administration Charges

Policy administration charges are deducted towards servicing and maintaining your ULIP. These charges will include the cost of paperwork, workforce, etc. The insurer deducts them monthly by canceling the units proportionately from each of the selected funds.

Fund Management Charges

As you can see from the name, these charges are deducted to manage various funds (equity, debt, or a mix of both) in which the money has been invested. These charges are for the management of funds, and the insurer deducts them before arriving at the Net Asset Value (NAV) of the funds. The maximum fund management charges can go up to 1.35% per annum of the overall fund value.

Mortality Charges

In ULIPs, the insurer deducts the mortality charges every month to provide death cover to the insured person. Mortality charges vary from one insurer to another as per the plan chosen and depend on the following factors.

  • Age of the policyholder
  • Coverage Amount (Sum Assured)

Partial Withdrawal Charges

Policyholders can withdraw a definite amount after the completion of five policy years if all due premiums have been paid. These withdrawals will be free up to a certain limit and then, you will need to pay a definite fee for each withdrawal.

Fund Switching Charges

The insurer offers policyholders the option to switch the fund between different fund options during the policy year to protect or enhance the investment. For example, if you have invested 100% of your money in equity funds, you can switch to a balanced fund with 65% equity and 35% debt allocation.

Insurers generally offer a fixed number of free fund switches during a policy year. After the specified limit, you will need to pay a fund switching charge that ranges from INR 100-500 per switch.

Premium Discontinuance Charges

After a specified lock-in period, a policyholder may decide to stop paying the premium amount towards the ULIP. In such a case, the money will be locked in a discontinuance fund and the insurer will deduct premium discontinuance charges as a percentage of the fund value of the premium amount. For a ULIP with a premium above INR 25,000, discontinuance charges can go up to INR 6,000 in the first year.

Premium Redirection Charges

These charges are deducted for redirecting your future premiums into a different fund option, which will not impact the investment in the existing funds. Also, you can redirect the premium amount up to a specified number of times after which you will need to pay the charges.

Top-up Charges

Under ULIPs, insurers allow policyholders to invest the surplus money either once or multiple times in your policy term. For doing the same, you will need to pay top-up charges (a definite percentage from the top-up amount) over and above your basic premium amount.

Rider Charges

Insurers allow policyholders to enhance their existing coverage by choosing from several rider options such as Critical Illness Benefit Rider, Accidental Death Benefit Rider, Family Income Benefit, etc. You will need to pay an additional premium over and above the base premium to get these rider options.

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