Finance

Charges you must know before investing in ULIPs

Certain procedures are involved when you decide to purchase a financial product, such as a policy. While it may seem quite simple to buy a policy, there are many things that the insurer has to take care of before they can issue the procedure to you as a buyer. All the formalities must be met by the insured.

If you are planning to invest in a ULIP, read more about the charges related to this policy.

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What is a ULIP Policy?

A ULIP is a life insurance policy that provides the policyholder with dual benefits of investment and insurance. You get to put your money into equity and debt funds via acquisition. Your investment is based on your risk appetite and life goals. Via insurance, your family is provided with life protection coverage from different life risks. If you were to pass away during the policy term, the insurer would compensate your family with a death benefit.

What are the charges related to ULIPs?

These are the charges of ULIP that you need to be aware of:

1. Mortality charge

You get the dual benefit of investment and insurance in ULIPs. The life cover protects your loved ones from different risks of life. This is beneficial in the event of your untimely demise. The amount they receive would help them to be financially stable and manage necessary expenses. This payout is known as a death or mortality benefit. Your insurer charges a mortality charge on this payout. Factors that decide the amount charged include age and coverage of the policy. Many companies return the number of mortality charges at the time of maturity.

2. Policy administration charge

Charges related to the expenses of paperwork about your policy, various services provided, and managing records about your policy are known as policy administration charges. Your insurer deducts this charge each month by redeeming units from your funds.

3. Fund management charge

In ULIP, you have the option of investing in equity funds and debt funds. Via equity fund, you invest in stocks of market-listed companies. You invest in government bonds, securities, and other markets via debt funds. Many policyholders prefer to have a professional handle their investment due to unsurety about their judgment or different time constraints. Your insurer will provide you with the services of a fund manager. The fund manager will overlook the customer’s investment and make decisions that could help maximize their returns. Now, the fund management charge is applied for availing of this service. Your insurer can charge you a maximum of 1.35% of fund value annually per the IRDAI mandate.

4. Premium allocation charge

One of the charges of a ULIP is the premium allocation charge. This charge is levied on the policyholder before it is allocated to them. The order covers costs related to the underwriting of the policy, medical tests, etc. During the issuing of the procedure, your insurer will cover this charge. However, once the policy is issued, this charge is levied on the first premium payment.

5. Switching charge

When you invest in a ULIP, you can switch from one fund to another. You can reallocate your investment from one fund to another with the help of switching. Insurers allow a limited number of free switches to their customers. However, if the customer wants to switch funds beyond that limit, the insurer will charge them a certain amount. The switching charge varies from insurer to insurer.

6. Surrender charge

If you were to surrender your policy during or after the lock-in period, your insurer would charge you a fee for submitting it. The insurer will deduct this fee from the fund value before giving you the plan’s returns.

These are the charges that are levied in ULIPs. You can contact your financial advisor to learn about other ULIP costs and plans.

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