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Insurance policy is a contract of protection/compensation by the insurer to the insured. It is designed to reimburse or compensate the insured party for the financial loss caused in event of death or damage to merchandise as mentioned in the insurance contract.

Broadly insurance can be classified in two categories:
First - Life Insurance which matures in event of death of the insured/policyholder. On occurrence of such an event the insurance company pays a sum of money assured to the nominee/beneficiary (person nominated by the policyholder). Life Insurances are of two types:
Traditional Plans - which contain Endowment Plan , Cash Back Plan, Term Plan , (Term Life Insurance) and Whole life policy. And Unit-linked Insurance Plans - are of 4 types - Endowment cum Ulips, Children Plan , Retirement Plan or Pension plan and investment/saving plans.
Second - General insurance. All insurance policies other than life insurance policies come under general insurance segmentation. (Also known as non-life insurance policies). These policies include Home Insurance, Auto Insurance, Travel Insurance, Marine Insurance, Theft Insurance, Office insurance and Health insurance
Health insurance is most acquired policy in general insurance segment. Health insurances are of 3 types - Comprehensive Plan - which include Mediclaim and Fixed benefits plan, Accidental Insurance and Critical Care plan .
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Home > ULIPs Charges

Know about ULIPs and its charges

Unit Linked insurance plan provides the combination of insurance with investments. It has the double benefit of providing a RISK cover & investing in stock markets. Unlike traditional plans the ULIPS are subject to the risk factors where the risk is borne by the policyholder, the investment risk is related with the stock markets & accordingly the NAVs of the units go up & down depending upon the fund’s performance & the factors affecting the capital market.

Before you invest in ulips check out what all charges ULIPS have. Unless you know about the charges in ULIPS by various insurance companies you would not be able to come to know about your returns in the short as well as in the long run because most of the charges are taken upfront. Thus the basic understanding about the cost structure of ULIPS would help you to know about your returns with complete transparency.

Basic Charges in ULIPs :

1). Premium Allocation Charge: This is a percentage of the premium appropriated towards charges before allocating the units. This percentage is generally higher in the first few years varying greatly from company to company. Say your premium allocation charges are 30%, and then out of your total premium paid of Rs. 1,00,000 Rs. 70,000 are invested in the funds effectively.

2). Mortality Charges: These are the charges to insure you against life cover which depends on no of factors such as age, amount of coverage, state of health etc. If you don’t take a life cover then your mortality charges become zero. As these charges depend upon your age primarily, these charges could be around 1.3 for a 30 year old guy & can extend to 6.4 for a 50 years old guy per Rs. 1000 of the sum assured.

3). Fund Management Charges: These charges are deducted for managing the funds before arriving at the Net Asset Value (NAV). The fee is charged as a percentage of funds under management by the fund mangers. These are ranging from 0.5-2% per annum.

4). Policy/Administration Charges:
These are the charges for administration of the plan which could be flat throughout the policy term or vary at a pre-determined rate. These are a monthly fixed amount which varies every year with inflation or as a percentage of sum assured.

5). Surrender Charges: These charges are deducted for premature partial or full encashment of units.

6). Fund Switching Charges: The charges when you wish to switch ULIP options like from Equity to debt. Generally a limited number of switches are allowed without any charge.

Points to be kept in mind :

1). Stay invested for long run: You will get good returns only after 5-8 years of investing therefore its charges should be seen from a long-term perspective as its charges are higher in the first few years which is why it takes more years to get a break even point in investments i.e. your cost will be recovered in a longer period. Your insurance agents might convince you to withdraw the money after 3 years but stay invested for 5-8 years to get good returns.

2). Be clear with the charges: The transparency about charges was not there earlier but now the Insurance Regulatory Development Authority of India has issued guidelines according to which the investors should know all the charges & no hidden charges can be charged.

3). Invest as per your risk profile:
You must understand your risk appetite & accordingly allocate assets across different categories. Choose your fund depending upon your age and risk profile.

4). Other features: Apart from the charges you should also look at the flexibility in switching your funds, fund management charges & the funds past performance should also be looked upon before you look out for ULIPS.

Thus ULIPS provide the twin benefit of covering your risks & investing in the stock market. Before you invest in ULIPS you need to take care of the past performances of funds you are investing your money & have transparency about what all charges are deducted from the premium. So be a smart investor & invest according to your risk profile for a long term to get the maximum returns from ULIPS.

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