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All You Need to Know about ULIP Charges

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All You Need to Know about ULIP Charges
March 16, 2019
ULIPs are Unit Linked Insurance Plans that serve as joint instruments for insurance coverage and investment through a variety of fund options. ULIPs come with a lock-in period of 5 years and therefore, enable financial discipline through regular investments which makes them ideal for long term financial goals. ULIPs also have the feature of permissible switches between various fund options that makes them very flexible and the subscriber gets to choose the fun option as per her/his risk appetite. Besides, investments in a ULIP come with tax benefits under Sections 80C and 10D of the Income Tax Act, 1961 and are also exempt from LTCG taxation. ULIPs have a lock in period of five years. This ensures that premiums are paid in a disciplined manner and there is financial regularity. This makes ULIPs ideal for mid-term to long-term goals.

There are certain charges and the fees involved in a ULIP, which are levied by the insurer. These charges are mentioned below:

  1. Premium allocation charges:

    These are the charges that are levied to recover the expenses incurred by the insurer towards issuing the policy and include the fee for distributorship and the cost of underwriting. These charges are recovered as part of the payable premium. Premium allocation charges are basically a set and pre-fixed percentage of the premium amount appropriated towards the chargeable amount before allocating the units under the policy while the balance amount is invested i.e. used to purchase the units of fund option chosen by the investor. In India, the Insurance Regulatory and Development Authority has mandated the rules and regulations under which the upper-capping on the premium allocation charges is decided and set after the lock-in period of five years.

  2. Mortality charges:

    When a policy is issued, the insurer provides the cover on the basis of the policyholder’s life expectancy (based on a number of factors like gender, age, health conditions etc.) In case the policyholder does not survive till the expected age, the mortality charges compensate the insurer. These charges are levied on a monthly basis and the exact procedure of calculating these charges in usually a part of the policy document.

  3. Fund Management Charges:

    These are the charges levied by the insurer for managing the fund options of the policy holder and these charges vary from one fund option to another. As per the set guidelines of IRDA, fund management charges cannot exceed 1.5% of the total fund value. Fund management charges are levied as a set pre-decided percentage of the fund value.

  4. Policy Administration Charges:

    When you invest in a ULIP, the insurer incurs some expenses towards administration of a policy and these expenses form the policy administration charges. Any expense incurred towards premium intimation, paperwork etc. are covered in these charges. Usually, policy administration charges are levied on a monthly basis and are either fixed or subject to be increased on a pre-decided rate.

HDFC Life offers HDFC Life Click 2 Invest ULIP- a market-linked plan that offers stable returns over a period of time and ensures that there is an optimum and flexible growth of your funds. For details, click on the mentioned link: https://www.hdfclife.com/savings-plans/sanchay-plus .

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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