As I mentioned in my earlier post, ULIPs are more insurance kinda thing than an investment option. So if the motive is to invest NEVER opt for ULIP due to its heavy charges and load structure, but if you are looking for an insurance plan then ULIP is best to get investment benefit too. Also, ULIPs are helpful only in long term plan. Most ULIPs return in negative in case of withdrawl before 5 ( or 7 sometimes) years coz of two fold reason
1. Heavy changes imposed
2. withdrawl penalty
Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are -
Policy administration charges - These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.
Premium allocation charges These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund. eg, the allocation charges may be 60% or 70% which directly means that if you are paying Rs. 100 to insurer, only Rs. 40 or Rs. 30 is going in your account and rest is commission.
Mortality charges Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.
Fund management charges A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC
The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time. Better is to have a close look at the terms and conditions. Also, most agents also make fake promises at the time of selling policy, so better is to ask evidence of whatever he promised before entering into transaction. You can do some bargain too with the agent, if you have done some research for other ULIP products.
1. Heavy changes imposed
2. withdrawl penalty
Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are -
Policy administration charges - These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.
Premium allocation charges These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund. eg, the allocation charges may be 60% or 70% which directly means that if you are paying Rs. 100 to insurer, only Rs. 40 or Rs. 30 is going in your account and rest is commission.
Mortality charges Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.
Fund management charges A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC
The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time. Better is to have a close look at the terms and conditions. Also, most agents also make fake promises at the time of selling policy, so better is to ask evidence of whatever he promised before entering into transaction. You can do some bargain too with the agent, if you have done some research for other ULIP products.
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