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A Complete Guide to ULIP Charges: Everything You Need to Know

Everyone aspires to achieve their financial goals over a period of time. To fulfil these goals, people start investing early in life. As a smart investor, one must allocate some portion of their income in investment to achieve their objectives.
 

With the dual benefit of life coverage and investment, ULIP insurance plans have become one of the most popular life insurance products in the market. However, with ULIPs, different charges are levied by the insurer depending on the services offered to the insured.
 

What are ULIP Charges?
 


In a unit-linked insurance plan, there are certain fees and charges that are levied on the policyholder. Some charges also depend upon the actions of the policyholder. The ULIP charges differ from one insurance company to another.
 

If you are wondering which charges are applied under a ULIP policy, then read ahead and find out.
 

  1. Premium Allocation Charges

    Premium allocation charges cover the initial expenses that the insurer incurs to allocate the policy to you. The PAC includes underwriting charges, commission charges, medical test charges, etc. These charges are deducted as a fixed percentage from the premium paid during the first policy year.

    For example, if the premium allocation charges are 10% and the premium paid is ₹50,000, then ₹5,000 will be deducted, and ₹45,000 will be invested.

  2. Fund Management Charges

    The insurance companies levy fund management charges to manage your funds in the ULIP plan.

  3. Policy Administration Charges

    Policy administration charges are levied to manage the administrative costs of the policy. These are deducted by cancelling a certain number of units from the fund value. The charges are levied monthly and remain the same throughout the policy term or can change at a predetermined rate.

  4. Mortality Charges

    Insurers levy mortality charges to provide life insurance coverage to the policyholder. These charges are computed based on age, coverage amount, etc. The ULIP plan charges are deducted monthly from the funds that the policyholder has invested.

  5. Rider# Charge

    Policyholders opt for riders# to enhance the coverage of the policy. If you choose riders# to enhance the coverage of your ULIP plan, then additional charges are applicable. The ULIP charges are deducted from the funds of the policyholder every month.

  6. Switching Charges

    Investors are allowed to switch between funds in ULIP insurance plans. The policyholder can make a certain number of switches free of cost. However, after the limit gets exhausted, each switch the insured makes attracts charges between ₹100 to ₹500. The charge depends upon the insurance company that you choose.

  7. Premium Redirection Charges

    If you redirect your future premiums to a less-risk fund without tweaking the existing fund structure, then there are some charges that you need to pay. These are called the premium redirection charges. For example, if you have been directing your premiums to fund A but wish to invest in fund B. In that case, you can easily redirect your future premiums to fund B without affecting the investment already made in fund A.

  8. Partial Withdrawal Charges

    After the lock-in period, the policyholder can make partial withdrawals from their ULIP policy. While some insurers do not charge for partial withdrawals, others charge a partial withdrawal charge as per the policy term if the insured makes more than a certain number of withdrawals.

  9. Policy Surrender Charges

    In an unexpected financial crunch, the policyholder may decide to withdraw the units either through complete or partial policy surrender within the first 4 years of the policy. After the 5th year, you do not have to pay any charges if you plan to surrender your policy. The policy surrender charges are calculated as a percentage of the fund value or the annual premium amount.

  10. Miscellaneous Charges

    These are small fees that you pay in case you wish to change some things in your insurance plan. For example, you might have to incur a small fee if you wish to change your premium payment mode from yearly to half-yearly.
     
Conclusion
 

Even though ULIPs come with a combined benefit of life insurance coverage and investment returns, it is important to be aware of the types of charges in ULIP before you decide to buy a plan for yourself. If you are someone who wants to secure their family financially and create wealth through market-linked returns, ULIPs are the right choice for you. Knowing the ULIP charges in India will help you make an informed decision.
 

L&C/Advt/2022/Nov/2727

Get Flexibility to Choose from 10+ Fund Options with our ULIP

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Disclaimers

  • 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 the 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.
  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch
  • 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.