ULIPs (Unit Linked Insurance Plans) are investment cum insurance product. If you take any ULIP policy from any company, then you pay some premium every year. And out of your premium some amount is cut for allocation charges, administration charges, mortality charges, fund management charges and all such charges by any other name. While buying ULIP plan, you should be aware or primarily ask your agents about these charges.
The charges usually attached to this type of policy are:
Premium Allocation Charge: This is a premium based charge. After deducting this charge from your premiums, the reminder is invested to buy units. The remaining percentage of your premium that is invested to buy units is called the Premium Allocation rate and depends on the year of allocation. The Premium allocation charge is very high in initial years (especially 1st year & 2nd year) and then reduces in later years. That’s the reason one should be invested in ULIP for long period to get maximum benefit. This could be range in between 5% to 50% of your annual premium depends upon company to company and plan to plan.
Fund Management Charges: Fund management charges are built into the daily net asset value (NAV). It varies from 0.6% to 1.50% per annuam charged daily, of the funds value.
Policy Administration Charges: Policy administration charges will be charged on monthly basis. This range can be between Rs 15 per month to Rs 100 per month. This charge will be taken by cancelling units proportionately from each of the fund(s) you have chosen.
Mortality & other Risk benefit Charges: Every month, the company levy a charge for providing you with a death cover or other benefit cover, as chosen, in your policy. The amount of the charge taken each month depends on your age and level of cover. This charge will also be taken cancelling units proportionately from each of the fund(s) you have chosen. The charges are broadly comparable across insurers.
Switches Charges: Some insurers allow four free switches in every year but link it to minimum amount. Others allow just one free switch in each year and charge Rs 100 for every subsequent switch. Some insurers don’t charge anything.
Top-ups: Usually attract 1 percent of the top-up amount. Top-up normally goes directly your investment accounts (units) unless you specifically ask an increase in the risk cover.
Surrender value of units: Insurers levy certain charges if the policy surrendered prematurely. This levy varies between insurers and could around 75 percent in the first year, 60 percent in the second year, and 40 percent in the third year and nil after fourth year.
Besides, one could check out the performance of similar scheme across insurance companies. Look at NAV performance over a period of at least two or three years. ULIPS are innovative products and suits people who want long term wealth creation with some insurance too.
Suresh Kumar Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner’s Guild, India. He is also a member of Financial Planner’s Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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