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ULIP Plan Charges You Must Know

October 30, 2018

ULIPs (Unit Linked Insurance Plans) are one of the best and most credible investments forms in India. ULIPs offer several benefits and provide a joint coverage for insurance as well as investment. The premium paid by the customer is diverted into two channels- one part goes for the insurance cover while the other is added to the investment corpus, from a host of options. Besides being flexible in terms of fund options that you get to choose from, ULIPs also provide tax benefits under Section 80Cof the Income Tax Act, 1961. On the whole ULIP plans serve as ideal long term investment models and serve your risk appetite by offering you market-linked returns on investment.

However, before choosing to invest in a ULIP, there are certain ULIP plan charges that you must know about. These charges are mentioned below:

  1. Premium allocation charge:

    This charge is levied to recover the initial expense incurred towards issuing the policy such as the distributor fee and the cost of underwriting and is deducted from the premium. Premium allocation charge is a percentage of the premium appropriated towards charges before allocating the units under the policy and the balance is the investible amount used to purchase units of the funds chosen by the policyholder. The Insurance and Regulatory and Development Authority, or IRDA, has set guidelines that ensure a cap on these charges from the fifth year onwards.
  2. Fund management charges:

    This is levied by the insurer towards managing the policyholder’s funds. As per guidelines given by IRDA, these charges must not cross the capping of 1.5% and is chargeable as a percentage of the fund. These charges vary from fund to fund.
  3. Policy administration charges:

    The insurer incurs some expenses towards administration of a insurance policy and these expenses form the policy administration charges. Any expense incurred towards premium intimation, paperwork etc. are covered in these charges. These charges are levied on a monthly basis and are either fixed or increase on a pre-determined and stated rate.
  4. Switching charges:

    These charges are charged by the insurer when the policyholder switches between fund options. ULIPs offer a limited number of fund-switch options and while doing so, the policyholder has to pay some charges to the insurer.
  5. Mortality charges:

    When a policy is issued, the insurer provides the cover on the basis of the policyholder’s life expectancy (based on a number of factors like gender, age, health conditions etc.) In case the policyholder does not survive till the expected age, the mortality charges compensate the insurer. These charges are levied on a monthly basis and the exact procedure of calculating these charges in usually a part of the policy document.
  6. Surrender or discontinuation charges:

    These charges are levied when there is any early or premature encashment of units. The rate and the slabs at which these charges are levied have been regulated by IRDA and charge shall not exceed 50 basis points per annum on the unit fund value and no other charge apart from this shall be levied by the insurer on surrender of the policy.

HDFC Life offers HDFC Life Click 2 Invest ULIP – an online plan that guarantees market linked returns and gives 8 fund options to choose from. For details, click on the mentioned link:  https://www.hdfclife.com/savings-plans/sanchay-plus

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