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IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICY HOLDER

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Get Market-Linked Returns with Tax Benefits$

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* T&C apply | BJAZ-WB-EC-04728/23

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$Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116.
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$Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116.

Overview Of ULIP Charges

Unit-linked life insurance plans, better known as ULIPs, are a unique financial product that offers the dual benefits of life insurance and investment. The premium that you pay towards the plan is invested in debt, equity and other market-linked funds. There are some charges associated with ULIPs, too.

A clear understanding of the types of charges in ULIP will help you manage your policy and your expectations better.

 

Different types of ULIP charges

 

There are different types of charges levied under a ULIP, some of them are as following:

1. Premium Allocation Charge

This is a percentage of the premium appropriated towards charges from the premium received. The allocation rate, referred to as the remaining balance, is the portion of the premium designated for purchasing units within the policy's fund. This percentage is explicitly disclosed and may fluctuate based on the policy year, premium amount, and premium type.

2. Fund Management Charge

This fee, calculated as a percentage of asset value, is deducted by adjusting the NAV. It's applied during the daily computation of NAV. The maximum cap for fund management charges is set at 135 basis points per annum for each segregated fund, excluding discontinued policy funds. For discontinued policy funds, the cap on fund management charges is 50 basis points per annum.

3. Policy Administration Charges

This fee encompasses expenses beyond those covered by premium allocation charges and fund management charges. It may be a fixed amount, a percentage of the premium, or a percentage of the sum assured. Levied at the start of each policy month, it's deducted from the unit fund by redeeming units equivalent to the charge. This fee may remain constant throughout the policy term or vary at a predetermined rate of change not exceeding 5% per annum.

4. Mortality Charge

This fee covers the cost of life or health insurance and excludes any additional expense loadings. It's deducted by canceling units and is typically imposed at the start of each policy month from the fund. The computation method is explicitly outlined in the policy document, which also includes the mortality or morbidity charge table guaranteed throughout the contract period. The charges for mortality risk covered should:

  • only encompasses the pure risk charges for the offered cover, without including expenses or other factors;
  • be reasonable and align with specified mortality or morbidity tables, if provided;
  • be supported by the insurer's own experience, where applicable.

5. Surrender Charge

This fee is applied to the unit fund for individual unit-linked insurance products when the policyholder chooses to surrender or discontinues the contract in accordance with regulations. It's typically stated as a percentage of the fund or as a percentage of the annualized premiums for regular premium contracts. No discontinuance charge is imposed on top-up premiums.

6. Other Charges

Take a look at some other types of charges available in ULIP:

● Partial withdrawal charge

This fee is imposed on the unit fund when a partial withdrawal from the fund occurs within the contractual period.

● Miscellaneous charges

This fee is imposed for any modifications within the contract, such as increasing the sum assured, redirecting premiums, or changing the policy term. It's represented as a fixed amount and deducted by canceling units, only occurring at the time of alteration.

 

What are the various ways to optimize your ULIP returns?

 

It is important to optimize your Unit Linked Insurance Plan to increase its overall efficiency. Here are some of the ways to do so:

1. Master the art of fund-switching

The term fund-switching refers to shifting from one fund to another. This is one special feature that can help you in managing your fund in a way that suits your investment goals.

ULIP fund switching is helpful when you have invested in a debt fund and want to switch to an equity fund or vice-versa, owing to your risk appetite, market trends and life goals. Since there are no tax implications on switching from debt to equity or vice versa, it makes this feature very attractive and can be used to optimise the ULIP.

2. Manage the overall risk in the portfolio:

There are some specified investment strategies that help the policyholder to manage the overall risk of the portfolio based on the asset allocation, risk profile and financial goals. Opting for these strategies could be helpful for the policyholder to manage the total risk of the entire ULIP portfolio.

3. Do not delay investing

Early investment can typically help optimise your ULIPs. When you start early, even with small amounts, you have a sufficient investment horizon to let the amount grow. The compound interest benefit is quite profitable in the long run.

Also, since the mortality cost of a young individual may be lesser than that of an older person2, you will be able to get a higher amount of money for investment at the same level of coverage as compared to an older individual.

4. Stay invested

To make the most of the power of compounding, it is best to remain invested. Also, since some of the charges are front-loaded¹, ULIPs tend to become cheaper when invested for a long time.

5. Top-up the policy when possible

You can top up your ULIP and invest any surplus amount to increase the chance of ULIP generating returns and also get a proportionately higher sum assured. Just remember to keep the annualized premium including top-up premium should be less than 10% of the capital sum assured at all times in order to avail maturity tax exemptions under section 10(10D) assuming policy is on or after 1 April 2012.

6. Pay the premiums on time

Paying the premium for ULIP is a must to continue the plan. Failing to pay the premium on time can constrain the benefits and the policy could also lapse. Also, a delay in payment or discontinuing the policy might cost you other charges and penalties.

7. Understand the tax benefits1

ULIPs offer not just an investment and life cover but tax benefits too. Under Section 80C of the Income Tax Act of 1961, a ULIP policyholder can avail tax benefit of up to INR 1.5 lakhs on the premiums under old regime of Tax. Apart from this, the death benefit is not taxable under Section 10(10D) of the Income Tax Act of 1961. You can also claim tax exemption on the maturity amount subject to satisfaction of the applicable terms and conditions under Income Tax Act.

 

How much should you invest in ULIP?

 

Every individual has a different set of needs and expectations. Even when two people invest in the same product, their requirements and their financial needs might be completely different. There isn’t any one-size-fits-all approach when it comes to dividing how much to invest in ULIPs. So, if you are wondering how much should you invest in a ULIP, there are certain aspects that you should broadly factor in:

1. Your financial needs

Probably the first thing to consider is your financial needs from the policy. A little research will go a long way, and thus as per your goal, you can calculate how much money you would be needing.

2. Your risk appetite

Your risk-taking capacity plays a crucial role in finalising your investment. The funds you choose should participate in the market only as per your risk appetite.

To understand how ULIPs work and to estimate the returns on your investment, you can make use of the ULIP calculator. The calculator will help you in making a well-informed regarding how much you should invest.

 

Conclusion

 

Securing the future of one’s family comes naturally to some of us. And the responsibility increases manyfold for the primary earners. ULIPs are a great option when you are looking to safeguard your family’s future against an unfortunate event. They can also help you build a suitable corpus that can help you in fulfilling your life goals.

 

FAQs:

 

1. How to calculate ULIP charges?

There are various types of ULIP charges levied. In order to get an idea of the ULIP charges for your plan, you need to go through the policy document in detail.

2. What are discontinued charges in ULIP?

Discontinue charges, also called surrender charges, are the charges levied on ULIP account holders when they stop paying the premium before the end of the 5-year lock-in period.

3. How to calculate mortality charges in ULIPs?

A part of the ULIP premium is used to offer life insurance coverage to the policyholder. While the mortality charge is expressed as Rs. 1,000/- sum at risk for each age the charges depend on a group of factors and may differ from one plan to another.

4. Can ULIP charges change over time?

Yes, there are some types of charges in ULIP that can change over time, such as mortality charges, surrender charges etc. Get in touch with your insurance provider to find out the specific details.

5. Can I get a breakdown of the charges associated with my ULIP?

Depending on the plan that you have chosen, your insurance provider can help you get the specific details of the associated charges of ULIP plan.

Source:

1. https://cleartax.in/s/unit-link-insurance-plan-ulip

2. https://www.livemint.com/Money/U2SIsrem4eHAhdWsosWjEM/A-ULIP-that-returns-mortality-costs-on-survival.html

3. https://m.economictimes.com/wealth/insure/smart-things-to-know-about-the-mortality-charge/articleshow/16980145.cms

BJAZ-WEB-EC-06902/24

#Survey conducted by brand equity – Nielsen in March 2020

~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read the sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.