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A life insurance policy is a fantastic investment product that offers life cover as well as an investment-cum-savings plan with healthy returns. An investor can plan for family safety during times of distress as well as some major life events around the policy maturity. While the standard insurance products are good, they get even sweeter if the returns are capital market linked. This is precisely what Unit-Linked Investment Plans (ULIPs) are; they offer the best of both worlds and in addition help investors reduce tax* liability.
A ULIP plan is a life insurance policy offering life cover with returns linked to markets. When you choose a ULIP plan in India, you develop a good habit of saving and investing in a regular and disciplined manner. This is crucial for good long-term investment planning and meeting life goals. As the main feature of the ULIP plans is market-linked returns, there are some risks associated and an investor needs to know these risks before investing in a ULIP policy.
There are several types of small charges that are levied by the insurer depending on the actions taken by policyholders. If the investor plans this investment properly, then they won’t incur most of the charges. IRDAI, the insurance regulator in India, limits the annualized ULIP plan charges at 2.25% for the initial 10 years of the policy term. The charges are to be evenly distributed through the lock-in term. Let's go through the different types of ULIP 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. For example, if the ULIP plan premium allocation charges are at 15% and the premium is ₹ 40,000, then ₹ 6,000 will be deducted as ULIP charges and ₹ 34,000 will be invested.
The administration of the policy attracts a fee. This fee is charged every month; it is usually the same throughout the term or changes at a predefined rate. The charges are levied by canceling the units from the funds in proportion to the rate.
Capped by IRDAI at 1.5% annually and charged as a portion of the fund value, these charges go towards managing your funds. It is computed before calculating the NAV and hence will not reflect in the net-asset value.
If the ULIP plan is surrendered prematurely within 4 years then a discontinuance charge is levied. After the 5th year, no surrender charges are imposed. The charges can be between ₹ 1,000-4,000 depending on the premium, as a percentage of the funds’ value and premium. IRDAI gives the basis for these charges, which cannot be more than the cost insurer incurred on the acquisition.
In times of need, investors have an option to prematurely withdraw from the ULIP plan after the first 3 years. However, early withdrawal attracts some penalties as per the policy terms.
Computed post factoring in age, health conditions, and insurer mortality table, these charges are levied by the insurer to provide death cover to the insured.
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 ₹ 100-500 charges as per the insurer’s terms.
You may redirect your future premiums to a lower risk fund without actually changing the fund and without making a tweak in the existing fund structure. While you do so, you will attract some additional charges.
If an investor adds a rider to the ULIP plan to get extra benefits, the additional charges are applied. For example, for a critical illness rider on ULIP policy, an investor needs to pay extra charges.
If an investor opts for guaranteed1 returns in the policy, then there are certain charges imposed by the insurer to ensure the payout. They are applied because the ULIPs typically offer market-linked returns instead of guaranteed1 returns. These are applied on high NAV guarantee1 type ULIPs.
Some small charges are levied by the insurer on a couple of things under the category of the miscellaneous charge, such as if a policyholder wishes to change the premium frequency from half-yearly to annually, they have to pay a small fee, etc.
Life-long cover (up to 100 years of age)
Choose from 11 funds. You can switch between funds if the fund is not performing as per your expectation.
Get income tax* benefits.
Requirement based additional riders# are available.
What are the charges in a ULIP plan?
What is the surrender charge in ULIP?
Is the ULIP maturity amount taxable?
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Insurance cover is available under the product.
The products are underwritten by Tata AIA Life Insurance Company Ltd.
The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry
#Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.
IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
Past performance is not indicative of future performance.
All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
Please make your own independent decision after consulting your financial or other professional advisor.