ULIPs are Unit Linked Insurance Plans. In simple terms it is purely an insurance policy but comes with the added advantage of investment plan of single unit. It is a single plan which is a combination of mutual fund and insurance. But while mutual funds have one consolidated expense to look for, ULIP Charges are multiple. Hence before going for ULIP Plans it is important for you to get a fair idea of what are the different charges associated with ULIPs.
Premium Allocation Charge (PAC)
This ULIP Charges include the initial expenses, the renewal expenses and the commission expenses. It takes up a higher charge in the first few years of starting the ULIP Plans. PAC is actually a percentage cut above the additional premium amount, and the left over balance buys the units in respect to the asset value. Charges in these ULIP Plans get lower as years progress. Whether the ULIPs are single or regular premium plan, it is the foremost determinant of the PAC.
When the charges in ULIPs are dependent on the plan coverage amount, age etc., such ULIP Charges are called Mortality Charges. This charge is deducted every month, and is basically the cost of the insurance that comes with the plan.
Fund Management Charge
As the name suggests, the cost that is applicable for managing the numerous funds under the ULIP is termed as the fund management charge. It is charged daily and is deducted before reaching the Net Asset Value. The maximum ULIP Charges under this charge is 1.35 percent per year.
Policy Administrative Charge
When the ULIP Charges include deduction of a fixed percentage or a certain percentage of the fund value as the cost of administrating the policy, it is called Policy Administrative Charges. By cancelling the units from the chosen funds, this charge is applicable on a monthly basis.
Partial Withdrawal Charge
When you get the allocation of fund withdrawal provided by your ULIPs then it is called Partial Withdrawal Charge. These days, unlimited withdrawals are allowed and are free to a certain limit. But usually most companies allow maximum 4 times and a charge of 100 rupees per withdrawal.
Fund Switching Charge
With a charge varying from Rs 100 to 250 each switch, fund switching charges are applied when funds or investments are moved between options. Undergoing the process online helps in lower charges to be applied.
Premium Redirection Charge
As the term redirect suggests, when you redirect your future payments of a particular fund to a different fund, such ULIP Charges which are applicable, are called Premium Redirect Charge. It has a flat fee and is charged transaction wise. Again, unlimited redirection is not allowed and after certain limit Rs 100 to Rs 250 is charged as Charges in ULIPs per transaction.
Premium Discontinuance Charge
It is suggested that ULIP Plans should ideally be continued without interference for 5 years at least because the money is stuck in the Discontinuance Policy (DP) fund and the Premium Discontinuance Charge is also applied on the same, which is the highest in the first year. Interest will also be charged upon the money locked in the DP fund.
Now that you are backed with the knowledge of all the associated costs related to ULIPs, it is time to pick a plan as per your best suitability and start investing!