Combining insurance cover along with capital appreciation tools like equity, debt and hybrid funds that can be chosen by the investor himself, ULIPs (Unit Linked Insurance Policy) attract the attention of many due to their sheer innovativeness. However, they also carry many charges.
Let’s have a look:
Partial withdrawal charge
ULIPs carry a lock-in of 5 years. But after the expiry of five years, one can take out a part of the amount amassed till that time. But you can have to pay pre-specified charges for that.
Guarantee charge
Though ULIPs are market-linked, some policies offer the guarantee of high returns after a specific period. But it comes in lieu of higher charges for that assurance.
Rider Charge
In any insurance policy, additional protection over and above the base cover is referred to as riders. Rider charges are deducted from the premium.
GST
The investor has to pay GST (Goods and Services Tax) on the charges collected by your insurer for providing facilities like premium allocation, policy administration, fund management, surrender of funds, policy reinstatement.
Premium Redirection Charge
The investor can choose the instruments where a part of the premium amount in invested to maximise capital appreciation. The investor has the liberty to shift his investments from one instrument to another. However, this service entails charges.
Switching Charge
Investors are also allowed to transfer funds between different funds, which is called switching.
Beyond a few fund switches a year, investors have to pay switching charges of about Rs 100 per switch.
Top-up charge
ULIPs offer a feature that allows the investor to park surplus money in the policy beyond the regular and scheduled premium payments. This helps to grow the wealth. But to offer this facility, insurers can deduct a certain share from the top-up amount.
Premium allocation charge
This charge accounts for the expenses associated with the life cover provided by ULIPs, such as underwriting, policy issuance and administration. Usually, premium allocation charges are deducted from the premium amount in the first year. This is usually higher in the first year and progressively goes down as the years go by.
Fund management charge
This covers the cost of allocating your money into the funds of the investor’s choice.
Other charges include mortality charges, policy administration charges and surrender charges. The plethora of charges has led the Insurance Regulatory and Development Authority of India (IRDAI) to cap the amount of charges.
Unit Linked Insurance Policy (ULIP) investment: The last thing any investor wants is nasty surprises. Therefore, before proceeding to invest, one should be aware of the charges that an instrument might entail. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
