To lay a firm foundation for a financially secure future, insurance and wealth security are essential. Depending on your income levels and the stage of life you are at, you can choose the right plans that offer to fulfil these aspects and more.

For some people, a top contender among plan choices is a ‘Unit-linked Insurance Policy’ or ‘ULIP’. This plan offers wealth creation plus insurance, making it suitable for someone who does not want to deal with too many plans.

What is a ULIP and why are these plans so popular? ULIPs are market-linked plans that offer variable growth over the plan duration, alongside life insurance. If the person insured were to pass away during the plan duration, their nominee may claim a death benefit. If the person insured survives the plan duration, they can enjoy maturity benefits. A ULIP calculator should help you get a better idea of what kind of returns you can expect from the plans.

Charges in ULIPs

There are several charges and fees associated with ULIP. This tends to make the plan tend towards expensive, thus possibly lowering its appeal for some. However, the benefits of ULIP may more than make up for it.

If you feel that ULIPs are the right plan for you, or have been considering buying one, it is necessary to take the time to know all about the plan. This applies to details beyond what a ULIP plan is. All consumers should be well aware of ULIP charges that may encounter. These are usually a part of the premium, so you may not have to pay for these separately.

  1. Premium Allocation Charges

This is a charge that covers the task of premium redistribution, and various other tasks, undertaken by the insurer. In most cases, the premium allocation charge is deduced in the first year alone. It is a one-time payment and will not be deducted again.

  1. Administration Charges

This is a recurring charge that is deducted from each premium. It usually remains consistent throughout the policy term. It is meant to cover the administration of the policy by the insurer.

  1. Fund Management Charges

This fee is levied to support the management of funds in your policy. It is usually charged as a part of your fund value. Presently, IRDAI has capped the value of annual fund management charges at 1.5% of the fund value.

  1. Surrender Charges

ULIPs have a lock-in period. This period is usually five years from the start of the policy. During this period, the policyholder is not allowed to surrender the plan. If they do so, they may attract a surrender charge. The amount of this charge depends on the type of policy and premium amount.

  1. Partial Withdrawal Charges

A lucrative feature of ULIPs is partial withdrawal. Upon the completion of the lock-in period, the policyholder is allowed the option to make partial withdrawals from the plan. This option is also allowed when the policy completes three years. This allows the policyholder to support themselves if they face any emergencies. However, such an early partial withdrawal (before the lock-in period is complete) usually attracts a partial withdrawal charge.

  1. Mortality Charge

A mortality charge depends on the age, health, and other factors affecting the mortality of the person insured through the policy. It is a fee meant to cover the possibility of the death of the person insured.

  1. Fund Switching Charges

ULIPs offer a certain degree of flexibility in the form of fund switching. The policyholder is allowed to change their choice of funds during the duration of the policy, to suit their goals better. However, there is a limit to how many times during a year can you switch funds. If you want to change funds beyond this, it may attract a fund switching charge.

Beyond these seven charges, there may be a number of other fees and charges that may come with your ULIP. It is best to know about them before you buy a plan. You can consult your insurance agent or an insurance representative to know more about these charges and how they may affect your plan.