Global Life Insurance – A Brief About ULIPs And Charges
Unit Linked insurance plans (ULIPs) offer both insurance and investment opportunities. Unlike traditional life insurance policies, ULIP plans are more prone to risks, which are borne by an insured person. In ULIPs, the returns are yielded on the basis of how that particular fund behaves in market. As a result, Net Asset Value (NAVs) of the units increases or decreases.
Before making any investments in ULIPs, it is required to get an understanding on varied charges levied by insurance companies. Unless you don’t have information about different charges, you would not be able to come to know about returns on ULIPs.
Below are charges levied by insurance companies on ULIPS
Premium Allocation Charge- Before the allocation of units, insurance companies charge an allocation charges on premium, which vary from one company to another and are also based on terms. For instance, in Bajaj Allianz’s ‘Shield Insurance’, premium allocation charge for single premium is 3 per cent and for top-up premiums, it is 2 per cent.
Mortality Charge- At the time of issuing a policy, an insurance company assumes that a policyholder will live up to certain age. These charges help in compensating losses to an insurance company, if a policyholder dies before the assumed age. The charges vary on the basis of current age, present health condition, term of policy, coverage amount, job of insured person, etc.
Fund Management Charge- This charge is deducted by companies for managing the funds for an individual and enables the funds attain growth. It is in compensation of fund managers’ fee. Companies deduct fund management charges before arriving at Net Asset Value (NAV). It varies from insurance companies and type of policy. For example, in HDFC Life SL Crest, fund management charges are kept at 1.35 per cent per annum.
Administration Charge- Insurance companies levy administration charges for meeting general administration costs, including daily accounting work, etc. It again varies from company to company. For example, in ICICI Prudential life insurance ‘Pinnacle II’, administration charges are 0.25 per cent for 1st to 5th year of the policy, and thereafter, it is 0.1 per cent.
Switching Charges- If an individual decides to switch from one fund to another within the same product, the insurance company will charge a switching fee.
Miscellaneous Charges- When an insured person wants to make any alteration within the insurance contract, the insurer will charge miscellaneous charges. This would include change made in the policy term or increasing coverage amount.
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