Investing in Ulips? Know about their charges first

August 06, 2018 12:30 PM

Ulip is one of the best insurance-cum-investment plans. However, it’s important to thoroughly understand the ULIP charges before making any investment in the same.

Ulip, Unit Linked Insurance Plan, Ulip charges, ulip returns, ulip plan, ulip calculatorUnit Linked Insurance Plans offer the flexibility to switch between funds according to your choice.

ULIP or Unit Linked Insurance Plan is one of the best insurance schemes. The presence of dual benefits in the form of insurance and investment together makes it an ideal investment option. Under the same, insurance companies allow you to invest a part of the premium in the chosen fund and use the rest amount to get the effective life insurance cover.

Check out various benefits of investing in ULIPs:

Tax benefits: ULIP basically comes under life insurance and offers great tax benefits in the form of tax-free maturity. Moreover, the tax benefits completely rely upon the form of investment that you make. Under a few conditions, equity funds can be taxed at 15%.

Flexibility: Unit Linked Insurance Plans offer the flexibility to switch between funds according to your choice. You can invest in either equity or debt funds. Moreover, you will have the authority to choose the fund option as per your market condition and risk appetite.

Long-term investment: If you want to invest for a long term, then ULIP is a good choice. This investment insurance plan provides the needful opportunity where you can increase the lock-in period that offers higher returns.

Low charges: Charges related to ULIPs are known as ULIP charges and they are basically low.

Life Cover: You must be aware that ULIP is basically a combination of investment and insurance. You can easily get the best one in the market as per your risk appetite. The best thing about this plan is that along with different options of investments, it offers the needful life cover as well.

With the above benefits, it is clear that ULIP is one of the best investment and insurance options. If you are looking for a long-term investment option with flexibility, then ULIP may be a good option.

What are the ULIP charges?

There are basically five charges associated with the ULIP such as premium allocation charges, policy administration charge, mortality charge, fund management charge and surrender charge.

Moreover, earlier the charges of ULIPs were high, but after the new regulations by IRDAI which stated that ULIP charges will be capped at 3%, it is quite easier for investors to invest their money as they will pay lower premiums and this will result in higher returns.

1) Premium allocation charge

This is basically deducted from the premium upfront. It is the percentage of the premium that is appropriated towards charges before allocating the units under the policy. In the initial few years, the premium allocation charges remain significantly high. However, IRDA has put a cap on these charges from the fifth year onwards.

2) Policy administration charge

It is deducted by the company for the maintenance of the policy. It involves the cost of the paperwork, premium intimation and so on. You have to pay the same on monthly basis. This charge can remain the same throughout the policy or can increase at a predetermined rate. For the initial 3 to 5 years, it will remain the same and will increase by a fixed percentage every year.

3) Fund management charge

This is one more form of charges which is related to the value of assets. Before arriving at the net asset value, this fee gets deducted. It varies from fund to fund. According to the IRDA guidelines, life insurance companies are not allowed to charge more than 1.35% per annum as the fund management fee. Mostly the debt-oriented plans carry much lower fund management fee than their equity-oriented counterparts.

4) Mortality charges

You have to pay this charge for the insurance cover. At the time of issuance of a policy, insurer assumes that the insured person will live up to a certain age only based on their current age, gender and health conditions. This charge compensates the insurance company in case the insured person doesn’t live to the assumed age. It is generally charged once a month. The methodology of computing the mortality charges along with the mortality charge table is generally a part of the policy document.

5) Surrender charges or discontinuance charge

For the purpose of premature encashment, a surrender charge will be deducted. The calculation of such charges depends upon the percentage of the fund or of the annualized premiums. IRDA has laid down a few rules related to the maximum surrender charges that can be levied by life insurance companies. According to the same, the surrender charge or the discontinuance charge should not exceed 50 basis points per annum on the unit fund value and no other charge will be levied by the insurance company on surrender of the policy.

Apart from the above-stated charges, you may have to pay some miscellaneous charges. Therefore, ask your insurer about the same before taking any final decision. As stated above, ULIP is one of the best insurance-cum-investment plans that can offer the needful protection and high returns. However, it’s important to thoroughly understand the ULIP charges before making any investment in the same.

(By Naval Goel, CEO & Founder of

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