What are the charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.
1) Premium Allocation Charge - This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
2) Mortality Charges - These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc
3) Fund Management Fees - These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV) .
4) Policy/ Administration Charges - These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
5) Surrender Charges - A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
6) Fund Switching Charge - Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
7) Service Tax Deductions - Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units