Are you aware of all kind of charges you pay in your ULIP? Many people do this mistake, by listening to the magical words of insurance agents, However you note that Your insurance agent is so humble just because his earnings and commissions are totally dependent on the policy sale to you. Just for your information, whichever policy charges highest, pays highest commission to agents and hence they pitch in the same policy to you .
However all charges are not the same in all the policies and even 2 policies from the same life insurance company may have different charges. Hence We at http://www.assettreat.com make an effort to educate all its readers about various charges being charged in the ULIP policy.
Please compare the below mentioned charges before
signing up with any ULIP policy.
Charges under ULIPs
Following are the major charges under ULIPs
Premium Allocation Charge:
Fund Management Charge (FMC)
Policy Administration Charge
Surrender Charge
Switching Charge
Mortality charge
Rider premium charge
Withdrawal charges
Partial withdrawal charge
Miscellaneous charge
Premium Allocation Charge
From the premium received, a certain percentage will be appropriated towards charges, this is known as Premium Allocation Charge. This is a charge levied at the time of receipt of premium. Generally the percentage shall be mentioned in the offer document. These are generally shown as % of the premium. Premium Allocation Charge could vary according to many factors such as policy year in which the premium is paid, the premium size, premium payment frequency and the premium type. Normally these charges are higher during the first few years and can come down to zero latter.
Example: If premium = Rs.10000 & Premium Allocation Charge: 10% of the premium; then the charge is: Rs.1000 and Balance amount of premium is Rs.9000 will be utilized to purchase units.
Some companies may mask these charges using different names. Therefore an investor must be very careful in reading the chart showing the total charges.
These charges are generally very high in initial 3 years, However there are many policies in the market where there are no Premium Allocation Charges or maybe very less allocation charges.
Few of the Policy where Allocation charges are lowest or nil
Bajaj Allianz Wealth Gain
Bajaj Allianz Retirement Plan(Single Premium)
ICICI Prudential ACE
Fund Management Charge (FMC)
Fund Management Charge is levied as a percentage of the value of assets and shall be appropriated by adjusting the Net Asset Value. This is a charge levied at the time of computation of NAV, which is usually done on daily basis.
Example: If Fund Management charge (FMC) is 2% p.a. your fund value before FMC is Rs.100000/- and Fund after this charge will be Rs.98000/-. 2000 rupee will go as FMC.
Policy Administration Charge
Policy administration charges are the charges that the company takes out from the paid premium towards payment to the sales people such as Insurance agent or banks, etc. This charge is not covered under premium allocation charges or the fund management expenses. It may be showed as a fixed amount or a percentage of the premium or a percentage of sum-assured.
Normally this charge is levied at the beginning of each policy month from the policy fund by canceling units for equivalent amount. This could be flat throughout the term of the policy or vary at a pre-determined rate.Generally these charges are higher during the first few years and can come down to zero latter.
Surrender Charges
Surrender Charges are levied on the unit fund at the time of surrender of insurance contract before the planned maturity date. This charge is usually expressed either as a percentage of the fund or as a percentage of the annualized premiums. Some companies do not charge anything after first three years but some companies charge till the end of 10th year.
Switching Charges
This a charge levied when you shift your investment from one fund to another. of monies from one fund to another available within the product. The charge will be usually a flat amount per each switch.
Switching is done to preserve our profits or to protect our principle. During market highs or the beginning of a recession a switch from equity oriented funds to debt oriented funds will protect your profits. ULIPs generally offer a number of switches ranging from 4 to 12 for free in a year.
Relaince Life Insurance Offers 52 free switches in a policy year in its policies and Bajaj Allianz Life insurance offers Unlimited free Switches in A year in most of its policies.
Mortality charge
Mortality charge is the cost of life insurance cover. This will be levied either by cancellation of units or by debiting the premium but not both. Mortality charge may be levied at the beginning of every policy month. The method of computation will be explicitly specified in the policy document.
Rider charges
Riders are add-on policies that give additional insurance benefits apart from the basic plan. The charges aregenerally low compared to the benefits added. Some of the popular riders are related to accident cover, disability cover, critical illness cover and waiver of premium. This charge is levied at the beginning of each policy month from the fund.
Withdrawal charges
ULIPs generally allow withdrawal after the stipulated 3 years. However there may be charges if there is request for more than one withdrawal in a year. Some plans may restrict the amount of withdrawal to a percentage of the available fund.
Partial withdrawal charges
This is a charge levied on the unit fund at the time of part withdrawal of the fund during the contract period.
Miscellaneous charge
Miscellaneous charges are levied for any alterations within the contract, such as, increase in sum assured, premium redirection, change in policy term etc. The charge is shown as a flat amount levied by cancellation of units.
Topup Premium Allocation Charges
Insurance companies have an option in ULIP's wherin you can pay Additional amount over and above your regular premium, certaion percentage of this additional premium(called topup Premium) is apportioned towards charges for paying this facility. Mostly it ranges from 1% to 4%.
However in Bajaj Allianz I Gain policy doesnt charges any allocation charges o topup premium.
I think you have done a deep scan of the policies and recent updated stuffs their, thanks for you contribution on your blog for helping it's reader.
Keep blogging and helping others !!
Thanks for the nice posting...
My question is
1. Is ULIP giving higher returns than Mutual Funds,since close to 30% of our investement goes for maintainace,morlaity,allocation,annual charges
2. What is the difference between Investing in ULIP's with Insurance plans like LIC Jeevan Tarang,Jeevan anand etc.
Lump Sum Annuity
Charges in ULIP vary from plan to plan and company to company. It is correct to assume that in initial years we have to pay high percentage of our investments as various charges.
Its always better to invest for short term in mutual fund. However if you are looking for long term investment there are few ULIP plans where charges are really less.
Remember that in ULIP max FMC charges are 1.5% for equity fund, whilst most companies charge upto 1.35% in equities.
Considering you are investing for long term and provided there are no allocation charges, its advisable to invest in ULIP.
Few plans where there are no/very less allocation charges are
ICICI Prudential Ace
Bajaj Allianz Wealthgain(Single premium Plan)
Bajaj Allianz I Gain II
As far as Jeevan tarang is concerned, its a whole life money back non ULIP plan and Jeevan Anand is the combination of Whole Life and Endowment Assurance plan
Thanks for posting, good research, what are the advantages of ulip insurance policy