If you are looking to buy a ULIP plan, there are many considerations before you finalize your plan. ULIPs are versatile life insurance products that aim to provide a dual benefit to the policyholder- the life cover of a term plan combined with market-linked investment opportunities for wealth creation. This multipurpose nature of ULIPs has made them highly sought-after life insurance plans. But it also means that ULIPs have a level of complexity to them.
So before starting your journey to find the perfect Unit Linked Insurance Plan for yourself, understanding the basics of ULIPs is a must. It is an essential exercise that, if undertaken properly, can make a massive difference in the long run.
In addition to understanding the basics of ULIPs, one must also understand the various charges that are involved. Being aware of these charges can give you crucial context when deciding the optimum premium amount that you will be able to pay. Let’s unravel more.
WHAT ARE ULIPs?
ULIPs are life insurance and investment plans that allow the policyholder to accumulate wealth through market-linked investments. This is done in addition to providing life cover for a sum assured to the insured. It is made possible by the two-way utilization of your premium amount.
The investment is made into a diverse pool of funds, made up of equity, debt, and a balance of the two. These funds have varying degrees of risk as per the risk appetite of the policyholder and can offer varying returns directly proportional to the risk involved.
There is an initial lock-in period of 5 years, after which you are allowed to make partial withdrawals from your corpus.
The significant benefits offered by ULIPs are as follows:
- Flexible Investment
- Tax Benefits
- Historically Low Premiums
What Are the Charges Involved in ULIPs?
ULIPs are elaborate products and have many facets, and the insurance companies levy charges on:
- Premium Allocation Charges: They are issued for the expenses borne by the insurance company to allocate the policy to you. They usually include the cost of policy underwriting, medical check-ups, and the commission fee for the intermediary (if any). These charges are a fixed percentage of the total premiums you pay in the initial years of your policy tenure, with the rate being higher in the first 2-3 years.
- Administration Charges: These are charges levied by the insurer for the administration of your fund. They are deducted in the form of units from your funds. They can be either varied or fixed throughout the tenure of the Unit Linked Insurance Plan and are deducted monthly.
- Fund Management: These are charges you pay for the insurance companies’ management of your funds. Currently, they are capped at 1.5 percent per annum by IRDAI (Insurance Regulatory and Development Authority of India). Note that these charges are usually higher for equity-based mutual funds.
- Surrender or Discontinuance: In case you decide to surrender your policy during the lock-in period, you are bound to incur these charges, which range from 2-20 percent of the annualized premium or fund value. They are, however, capped at INR 6000.
- Partial Withdrawal: ULIPs allow you to make partial withdrawals after the end of the lock-in period of 5 years, but these can incur charges. However, Edelweiss Tokio Life Insurance offers this service without any cost.
- Mortality: They are the charges levied for providing life cover to you and are calculated by considering factors like your age, status of health, etc.
- Switching: Unlike Mutual Funds, ULIPs allow you to make switches in the funds you are invested in. These switches are permitted at no extra cost, up to several switches per year. However, Companies like Edelweiss Tokio Life Insurance let you make an unlimited number of switches without any cost, making their ULIP plans highly lucrative for active investors.
- Premium Redirection: They are incurred by you if you decide to redirect your future premiums to a less risky fund option. Your present fund structure stays intact, though. Again, Edelweiss Tokio Life Insurance lets you do this without any additional charges.
- Additional Riders: One of the defining features of a ULIP is the riders it offers. They add a layer of customizability to the policy at an additional cost, which is well justified. Edelweiss Tokio Life Wealth Secure+ ULIP allows its customers to choose from a total of 6 riders including Accidental Total and Permanent Disability Rider, Waiver of Premium Rider, Accidental Death Benefit Rider and more.
- Guaranteed Returns: In case of a guarantee by the insurance provider regarding the returns of your ULIP Plan, guarantee charges are levied. They make sure that you get a set amount irrespective of market conditions.
- Miscellaneous: These include charges for minor changes and services that you make use of during the policy tenure. Edelweiss Tokio Life Insurance does not levy any charges for these ancillary services.
Understanding the fee structure of your ULIP plan can help you make certain decisions during the policy tenure with crucial financial context. Companies like Edelweiss Tokio Life Insurance are very transparent about the charges they levy and don’t levy, and you can easily find this information on their website.
This makes their ULIP plans like Wealth Secure+ highly sought after and a customer favorite. Check it out today to understand the hype!