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WHAT are the DIFFERENT KIND OF CHARGES in a ULIP?
Unlike conventional traditional products charges are segregated in ULIP & thus made known to the customer.
You can know the charges applicable on your ULIP through:
- Sales benefit illustration : A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know exactly how much money is deducted as charges & what is invested.
- Brochure : A brochures informs you about the various charges & their purpose applicable on your policy.
- Advisor : You should enquire your advisor about all the charge applicable on your policy.
Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are:
- Policy administration charges
These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.
- Premium allocation charges
These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund.
- Mortality charges
Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.
- Fund management charges
A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC
The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time.
The above can be very simply broken down into:
What a ULIP is
A plan which gives complete clarity about the various charges deducted and why it’s being deducted and so how your fund will grow over time.
What a ULIP is not
A plan in which you don’t know where your money is going or what is happening to it.
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