Are you planning to invest in ULIP plans or Unit linked Insurance plans? I hope you have read the complete guide to ULIP plan before proceeding here. You will also know is ulip a good investment option by reading that article.
In this article, I will share about the key & mandatory charges in any ULIP plan which you have to bear in case you invest in such plan. If you don’t know them, then you will never be able to realize how much actual return ULIP plans will give in long run. In case you surrender ULIP plan in short term then you have to bear a huge loss due to these many ULIP charges. So, better to know them properly first.
6 ULIP charges you must know
ULIP is a special insurance product which is designed such a way that one can take benefit of both life insurance and also return of market. Although you can control your risk profile y choosing various types of predefined funds in ULIP plan. But to manage the whole product there are various charges you have to pay from your premium.
Premium Allocation Charge
This is the charge you have to pay for choosing the way of premium payment. E.g. single premium or regular premium payment option. Mostly you have to pay around 3% – 4% of your premium amount for this charge. In many case if you continue your policy beyond 6+ years, you may get some discount also.
Mortality Charges are common charge to calculate how much life cover can provided to you for the premium amount paid. This charge will depend up insurer age and the amount of life cover.
This is the administrative charges for maintaining your funds that will be calculated every month and deducted form your premium amount. Generally for single premium policies, this charge is low when it is comparatively high for regular payment ULIPs. These charges are applicable in first 5 year duration.
Fund management charges
Fund management charges will be applicable and will be adjusted from the NAV on a daily basis.
In case you want to surrender or don’t want to continue your ULIP before completion of 5 years, your ULIP will be charged a Discontinuance Charges which will be determined based on many conditions.
Fund Switch charges
In case if ULIP, you can switch your funds as per market condition or according to your investment need & goal time to time to maximize return and stay invested for long term. In such a case there will be a fund switching charges applicable sometimes. In most cases, you may find ULIPs with free fund switching charges these days.
Now, you should think twice before surrendering ULIP before 5 years in case you have invested already. If not and planning to enter into ULIP, then make sure that you will keep invested for long term to reduce the effect of these ULIP charges in long run.