11 ULIP Charges Everyone Must Know

Unit-Linked Insurance Plans (ULIPs) are life insurance policies that also offer long-term investment options. If you want to know the UnitLinked Insurance Plan meaning in detail, read on.

What is ULIP?

ULIP is fundamentally a life insurance policy that includes investment avenues for wealth creation. Insurance companies deduct a small part of your premium under applicable charges and use the remaining amount to invest in equity and debt funds, depending on your goals. You can even choose to invest in a way that combines both equity and debt-based assets.

ULIPs have a five-year lock-in period after which you can start withdrawing from your accumulated fund. The insurance provider lets you switch your investment among multiple funds if you need to reallocate your capital.

If you plan to purchase a policy, it is vital to first learn about the ULIP charges. You can then determine the total cost of the policy. Here are 11 types of fees associated with ULIPs.

  1. Premium allocation fee

When you purchase a new ULIP, the insurance provider charges you a premium allocation fee that finances the agent’s commission, medical expenditure, underwriting, and certain other expenses. They charge it from your first premium payment. If your premium is INR 2 lakh, and the premium allocation fee is 20%, then the insurer will deduct INR 40,000 and invest the balance amount in your ULIP.

  1. Administration fee

This is a fee that the insurer charges for administrating your ULIP. They levy it by canceling units from each fund every month during the entire policy tenure. Depending on the insurance company, the fee may change with time or stay fixed.

  1. Fund management fee

When you invest in a ULIP, professional fund managers control your investments to ensure the best possible returns. The insurance company charges you a fund management fee for this service by deducting a percentage of the fund value. The Insurance Regulatory and Development Authority of India (IRDAI) mandates that this fee should not be over 1.5%.

  1. Discontinuance or surrender fee

If you surrender the ULIP policy before the end of the lock-in tenure, you have to pay a discontinuance fee. The insurance provider charges it as a percentage of the premium and fund value. Depending on the premium you already paid, the cost can range from INR 1,000 to INR 6,000.

  1. Partial withdrawal fee

You are not allowed to withdraw from the ULIP fund until the lock-in duration of five years is over. The insurer lets you make partial withdrawals after that under certain conditions. However, you have to pay a partial withdrawal fee to use this facility.

  1. Mortality fee

This is a charge you have to pay to maintain the ULIP’s death cover. The mortality fee depends on your current health situation, age, and other factors.

  1. Fund-switching fee

ULIPs permit you to move your investment among various funds, depending on your evolving requirements. Insurers allow you to switch for free for a fixed number of times yearly. After that, you have to pay a fee per switch.

  1. Premium redirection fee

If you want to redirect your premium to less-risky funds in the future without changing the fund structure of the ULIP policy, the insurer will charge you a premium redirection fee.

  1. Guarantee fee

Some insurers allow you to opt for a ULIP that offers guaranteed high returns. However, you have to pay a guarantee fee to avail of this service.

  1. Rider fee

You can purchase additional riders along with your existing ULIP to enhance the cover. A critical illness or any other rider can be useful. However, you need to pay a fee to include riders in your ULIP.

  1. Miscellaneous fees

There are certain other ULIP charges known as miscellaneous fees. For instance, if you want to alter the payment frequency of your premium, you need to pay this expense.

Now that you know about the charges associated with ULIP, it will be easier for you to calculate the total expense of buying the policy. You can compare that with potential returns to get a better idea about how much you can earn from a ULIP.