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ULIP Plan Charges You Must Know

July 27, 2023

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 80C# of 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.

What Is a ULIP Policy?

Unit-Linked Insurance Plans (ULIPs) are life insurance offerings that provide investment options and life insurance coverage. The premiums you pay for ULIPs get split into two. A small portion goes towards providing life insurance coverage, while the rest gets invested in various funds of your choice. These plans have a five-year lock-in period and provide long-term financial growth linked to market fluctuations. You can select investment funds based on your future goals and risk appetite. If anything happens to you during the policy tenure, the insurance company provides your beneficiary or heir with the sum assured payout.

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. Discontinuance or Surrender Charge

    The insurance company will charge a fee if you surrender your ULIP Prematurely within the five-year lock-in period. It depends on the premium amount, fund value & the year of discontinuance. The IRDAI regulates the charges; ensuring companies cannot levy a very high fee.

  7. Partial Withdrawal Charges

    The partial withdrawals you make from the accumulated corpus may attract penalty charges based on the withdrawal amount and your premium amount.

  8. Premium Redirection Charges

    Insurance companies may levy a small fee when you redirect future premiums to funds with a lower risk.

  9. Rider Charges

    You can purchase riders from your insurance company to enhance your life insurance coverage. However, you must pay an additional amount to enjoy the benefits provided by the rider.

  10. Miscellaneous Charges

    Insurance companies may charge nominal fees when you make changes to your policy. For example, when you shift from paying your premiums annually to half-yearly, you could have to pay a small fee.

ULIPs are unique financial products that help you save for the future while protecting your family’s present. Before investing, ensure you understand all the charges and fees associated with these plans. Compare the costs of various policies and choose one that provides maximum benefits at pocket-friendly costs. Always check the policy documents to understand the plan terms and conditions before making your decision.

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ARN - MC/07/23/2976

#Subject to conditions specified u/s 80C of the Income tax Act, 1961.

The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.