A Unit-Linked Insurance Plan or ULIP Plan is an investment avenue that provides the dual benefit of life insurance protection and market-linked returns. It is a financial product that serves dual purposes of insurance and investment and is the main reason for its popularity as an investment tool.
While even the best ULIP plans give high returns to the investor, they are prone to various market fluctuations and risks. To contain these risks, a ULIP plan carries several charges that are taken as a percentage from the premiums paid by the investor for the ULIP plan, and the rest are invested into the chosen fund avenues.
Thus, before you buy a ULIP policy, it is essential to know about these ULIP charges and then decide.
1. Premium allocation charges
These charges are issued before the allocation of the ULIP policy for the expenses borne by the insurance company to allocate the policy to you. These include the costs of policy underwriting, medical check-ups, and any intermediary commission fees. A fixed percentage from the premiums you pay us is deducted for this purpose. It is charged only during the initial 5 to 7 years of the ULIP policy and is higher in the first two to three years.
2. Administrative charges
True to its name, these charges are levied for the administration and caretaking of the ULIP plan. These charges are deducted as units from all the fund avenues you choose on a monthly basis. The rates for these units are either fixed throughout the tenure of the ULIP plan or vary as per the rates fixed under the plan.
3. Fund management charges
Even the best ULIP funds need the perfect management. And this management requires effort, expertise and caution on our part. That is why these charges are attracted on a daily basis for the managing of the diverse fund avenues – and capped at 1.5% per annum of the total fund value (as per the directive of the Insurance Regulatory and Development Authority of India). The fund avenues are distributed into equity and non-equity categories and include:
- The Equity Large Cap Fund
- The Equity Top 250 Fund
- The Equity Mid-Cap Fund
- The Managed Fund
- The Bond Fund
- The Equity Blue Chip Fund
- The Gilt Fund
From these, the Equity funds have a higher fund management charge (as they are higher risk avenues); and the non-equity funds (the Bond Fund and Gilt Fund) are lesser (1.25%) as they are low to medium risk avenues.
4. Fund switching charges
With a ULIP investment, you get the freedom to switch your funds as per your risk appetite and savings goals. However, making fund switches after a limited or set number can incur fund switching charges of around ₹50 to ₹150 for each fund switch. However, with an Edelweiss Tokio ULIP investment, you get an unlimited number of fund switches each year at zero cost.
5. Partial withdrawal charges
A ULIP insurance plan’s tenure is between 10 to 25 years. During this term, you can make partial withdrawals from the returns earned on the funds after 3 years from the policy’s start date. These withdrawals can attract a charge; however, with Edelweiss Tokio Life, you can make as many withdrawals as you need at no cost.
6. Surrender (discontinuation) charges
Surrender charges are penalty charges levied on you if you discontinue or surrender the policy before the completion of the 5-year mandatory lock-in period of the ULIP insurance policy. These charges are taken from the annualized premium or the fund value and are between 2% to 20%. Moreover, there is a maximum cap of ₹6,000, beyond which you will not incur any penalty fee for surrendering the ULIP policy.
7. Mortality charges
These charges are issued to you for the insurance coverage provided to your family members in the event of your unfortunate demise. This charge will depend on your age, health history, the amount of the sum assured, among other factors.
8. Premium relocation charges
As mentioned above, a portion of the premiums you pay for the ULIP policy is invested into fund avenues of your choice. The funds you choose, however, are not fixed, and you can switch between them in two ways:
- By switching between one fund to another altogether
- By redirecting the policy premium, you pay from one fund into another.
To do this, some insurance providers charge a premium relocation fee, but with us, you can do so free of cost and without any worry.
9. Additional rider charges
Among several ULIP plan charges, there are extra charges for adding any riders (covers) to your ULIP policy. These covers give an extra layer of protection and include a life partner cover and child cover, over and above the base cover. They protect your spouse and children in your absence.
10. Guarantee charges
These charges are attracted when you are promised and guaranteed high returns under a ULIP plan. This is to ensure that you receive the guaranteed amount irrespective of any market fluctuations.
11. Miscellaneous charges
Apart from the above charges, you might be charged any miscellaneous charges for ancillary services rendered. However, with Edelweiss Tokio Life, there will be no other hidden or extra charges apart from the ones detailed in the terms and conditions of the ULIP policy.
Edelweiss Tokio Life ULIPs enable you to grow your wealth at minimum costs. With us, you can kick start your investment journey with as little as ₹1,000 a month. Moreover, with most of our ULIPs, you will be exempt from ULIP charges such as premium allocation charges, top-up allocation charges, fund switching charges, premium redirection charges, and partial withdrawal charges!
To find the right ULIP investment at affordable premium prices or get help using our ULIP calculator, reach out to us today!
Neha Panchal - Financial Content Writer
Neha used to be an Engineer by Profession and Writer by passion, which is until she started pursuing full-time writing. She's presently working as a Financial Content Writer, with a keen interest in all things related to the Insurance Sector.