ULIP charges

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ULIP charges are one of the most popular topics in the Insurance industry today.

Let us take a look at what and how much charges are deducted in one normal ULIP plans.

Premium Allocation Charge:

Each insurance company deducts an amount from the premium every year.

On first year this charge is higher on account of Commission and marketing cost which company deduct from your premium.

First year charge normally varies from 5% to 30%. However previously before new rules by IRDA, there are insurers who were charging as many as 70% as Allocation charge.

This means out of your 1000 Rs a meager 300 Rs gets invested.

Deduction from second and third year onwards decreases significantly and it ranges from 2.5% to 5%.

This is the one of the main reason why people says ULIP is the investment vehicle only for those who has a longer time horizon.

Risk Covers charges:

This includes your pure life insurance premium as well as any other riders charges like Accidental benefit.

This is age specific and varies from person to person.

Mortality Charge:

Normally in ULIP plans if one dies, Sum Assured or Fund Value of Units (Whichever is greater) is paid and hence Mortality charge is deducted only till or when the fund value is less then Sum Assured.

For eg.

If Fund Value is 1,10,000 and S.A is 1,00,000 then no amount is deducted under mortality charge.

Normally Mortality charges is calculated and deducted every month.

Rider benefits if opted will get calculated separately and it gets deducted on monthly basis.

Policy Administration charges:

This is also monthly charges. For first year it is higher and reduces from second year onwards.

It can be Rs 150 per month in the first year and Rs. 50 per month in the subsequent years.

Fund Management Charge:

This charge depends on the fund you have selected.

And it gets calculated yearly.

The charge is deducted as percentage of fund value.

Switching Charge:

As name suggest this gets deducted when one switches funds.

Most insurance companies provides some free switches and any subsequent switches may cost between Rs 100 to Rs.200

Service Tax Charge:

A service tax charge is applied on Policy Administration, Mortality, Accident Benefit and few other riders.

Miscellaneous charge.

This is a charge levied for an alteration within the contract, such as reduction in policy term, change in premium mode, etc…

Although there are lots of charges and it can be changed from time to time as per IRDA’s guidelines and approval.

Apart from Allocation charge which directly applied on your premium, fixed number of units gets deducted every month for rest of the charges

So don’t be panic if your number of units in a particular month falls from the previous month ;-)

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