How Do I Manage My ULIP Policy?
Managing your ULIP is easy. You can choose how your money is used. There are three main ways:
- Self-switching – You can switch funds basis the market performance , your risk appetite and life goals.
- Automatic switching – Some ULIPs offer an automatic or “asset allocation” feature where the fund manager adjusts your portfolio over time to reduce risk as you approach your goal.
This way, you stay in control and can adjust the plan as per your goals.
What ULIP Charges Should I Expect?
A ULIP is a plan that gives life cover and helps your money grow through market-linked funds. However, there are charges associated with the functioning of this plan. These include fund management charges, premium allocation charges, administration charges, switching charges, mortality charges, premium redirection charges, partial withdrawal charges etc.
It is important to know about these charges to get a better understanding about ULIPs. Let’s now look at each charge in simple words.
Fund Management Charge
This fees is taken by the insurance company to manage the market linked funds. When you purchase a ULIP, a part of your premium goes into different types of market linked funds like equity, debt, balanced funds. These funds are handled by professionals called as fund managers. The fund manager aims to optimize your investment returns by actively managing the portfolio in line with prevailing market conditions. For this service, a small charge is taken.
Premium Allocation Charges
Premium Allocation Charge refers to the portion of the premium deducted upfront by the insurer before investing the remaining amount into the ULIP fund. This charge typically involves Initial policy issuance costs, administrative expenses etc.
Let us understand some points on premium allocation charge:
- Deducted upfront: This is a charge levied at the time of receipt of premium.
- Allocation Rate : The portion of your premium that remains after charges—called the allocation rate—is used to buy units in the investment fund linked to your policy. .
- Varies by plan: Charges differ across insurers and ULIP plans.
For example, if you pay ₹10,000 and the premium allocation charge on your policy is 5%, then ₹500 is deducted as premium allocation charge, and the rest goes into your savings fund.
Always check the policy brochure to know the exact price charge.
Policy Administration Charges
This is a small charge that the insurer deducts to run your ULIP policy smoothly every month. It is called an administration charge. This charge helps with managing all the day to day operations of your policy like keeping records, sending you updates, maintaining your account etc.
This charge may be expressed as a fixed amount, a percentage of the premium, or a percentage of the sum assured. This is usually deducted automatically from the unit fund by cancelling units for equivalent amount. However, it is always beneficial to review the plan details to understand all applicable charges beforehand.
Some newer ULIPs offer minimal administration charges to make the plan more affordable. Always read your policy document carefully to understand how this charge applies.
Switching Charges
One of the features of a ULIP is that you can switch funds based on your risk appetite , market performance , life goals . You may want to switch from a high-risk fund to a low-risk fund or vice versa, depending on the market. This is called a “fund switch.”
Most plans allow a few free switches every year. For example, you might get 2 or 4 free switches. After that, if you switch again, a small charge is taken. This is called switching charge.
Switching helps you make the most of the market conditions. Always check how many free switches your plan offers.
Mortality Charges
Mortality charges are the fees charged for the life insurance cover provided under your Unit Linked Insurance Plan (ULIP). When you purchase a ULIP, your premium is divided into two parts: one part is allocated towards providing life insurance coverage, and the other part is invested in market-linked funds for savings and wealth creation. The mortality charge is the cost you pay to ensure that your family receives a financial benefit in case of your unfortunate demise during the policy term.
Mortality charges are primarily based on your age, but insurers also consider factors such as your health status, gender, and the sum assured you opt for. In the case of ULIPs, these charges are usually deducted on a monthly basis from the fund value.
Premium Redirection Charges
Premium redirection in a ULIP means changing the allocation of your future premium payments to different fund options within your policy, subject to policy terms and conditions. For example, if your premiums were previously invested in a high-risk equity fund but now you want them directed to a safer debt fund, you can use the premium redirection feature to make this adjustment. This allows you to adapt your investment strategy to your changing goals or market conditions.
Some ULIP plans allow you to redirect your premiums a certain number of times for free. However, if you exceed this limit or if your insurer charges for every redirection, a premium redirection charge may apply.
Partial Withdrawal Charges
ULIPs are meant for long-term savings, but sometimes, you may need some money before the policy ends. Maybe for a medical emergency or school fees. In that case, ULIPs allow you to take out a small part of your fund value post the lock in period of 5 years . This is called a partial withdrawal.
FAQs
Is ULIP a good idea?
Yes, ULIP can be a good idea if you want life protection and want to invest in market linked funds. A part of your premium is used towards life cover while the rest is invested in market linked funds. So, it’s like building a corpus for the future while also keeping your family safe.
How does a ULIP differ from term insurance plans?
With a term Life insurance plan you ensure financial security for your loved ones in case of your untimely demise. However, there are no payouts in case you (if the policy is in your name) outlive the policy tenure. ULIP is a plan that combines fund growth with life insurance. It means, you can provide your loved ones with security of life insurance and build a corpus alongside.
What are the advantages of investing in a ULIP?
A ULIP plan has several advantages. You not only receive life cover to financially secure your family, but also the opportunity to grow your savings with market-linked funds. You receive the additional benefit of tax savings under Section 80C under the old tax regime. After 5 years, you make partial withdrawals , subject to policy terms and conditions . You have the option to switch your funds depending on your life goals, risk appetite , market conditions etc.
Can I switch between different funds within a ULIP?
Yes, you can switch your investments between different market linked funds within a ULIP, subject to policy terms and conditions. This feature allows you to transfer your money from one fund type (such as equity, debt, or balanced) to another, based on your changing financial goals, risk appetite, or market conditions.
Most ULIPs offer a certain number of free fund switches each year, depending on your policy terms. After exhausting the free switches, a nominal charge may apply for additional switches.