Everything You Need to Know About ULIP Charges


Unit-Linked Insurance Plans are a market-linked instrument combined with an insurance policy. So, the premiums paid for such a plan go towards securing a life cover and giving lucrative returns for the long term. But just like every investment tool, ULIPs also come with a set of charges that you must pay for availing the services. Right from the expenses for managing your investment fund to charges for making partial withdrawals, some of them offer beneficial facilities. Continue reading to know everything about the charges associated with ULIPs.

  1. Fund Management Charges

Fund Management Charges or FMC is a fee that you must pay to the insurance provider for managing your investment fund. As per the IRDAI, this fee should not be more than 1.35% of the fund value per annum. Thus, the FMC is charged on your fund value and is deducted before determining the Net Asset Value (or ULIP NAV). But as the policyholder, you should bear in mind that the FMC will keep increasing as your ULIP plans returns grow.

  1. Mortality Charges

With ULIP, you get life cover to financially safeguard your loved ones in your absence. Hence, the insurance provider charges you a mortality fee for providing you with a risk cover. This expense is calculated based on numerous factors such as your health, age, gender, etc. before deciding the fees you must pay. So, the mortality charges must be paid once per month to the insurer.

  1. Premium Allocation Charges

Premium Allocation Charges or PAC is a fixed percentage that is deducted from the premium paid. It is usually subtracted from the premium before the amount is allocated towards funds. This fee is higher in the initial years of the policy to recover the cost incurred by the insurance provider. As the policy term increases, the charges slowly lower. But PAC may depend on several aspects such as the premium amount, purchase mode (online or offline), premium type (single or regular), payment frequency, etc.

  1. Fund Switching Charges

Unit-Linked Insurance Plans enable you to switch funds based on your risk appetite during the policy tenure. However, this switch comes with an additional charge in case you utilise the limited number of free switches available for the term. Insurance providers charge a flat fee for changing your investment fund. But the fee can vary if the transaction is carried out online.

  1. Policy Administration Charges

From the term itself, you must have guessed that this fee is charged for the administration of your plan. The company incurs some expenses for maintaining your ULIP policy and thus, the charges resulting from premium intimation, paperwork, etc. are deducted. The policy administration charges are levied per month and can be a flat fee or a percentage of the fund value. Make sure you check how your insurer levies this charge for your policy.

  1. Partial Withdrawal Charges

You can make partial withdrawals under ULIP to meet any financial emergencies in your life. But some insurance providers may limit the number of partial withdrawals allowed. And a few of them could be free of cost. Once you get past these fixed withdrawals, you might have to pay a fee for making further payouts. However, it is recommended to check with your insurer for the exact charges.

With this, you can now understand the different types of charges that shall be deducted from your ULIP plans returns. But, when compared to the returns you can earn from your ULIP policy, the impact of such expenses shall lessen in the long term. So, get a ULIP policy today after planning investment returns with the help of an online ULIP calculator.

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