ULIPS in India

ULIP is a combination of insurance plus investment designed to provide higher returns than conventional products by investing in the market. However what usually fails to come to light is the high ulip charges imposed by insurance companies. ULIP charges could be anywhere between 2 to 100%! There are number of allocation charges in ULIP such as initial administration charge, regular administration charge, policy administration fee and investment management charge. All these charges put together can eat up to 30-70% of your premiums in the first year, depending on the company you choose.

Allocation charges in ULIP

Before you decide on a ULIP, find out about various allocation charges. These ulip charges, a large extent, determine the usability and effectiveness of a ULIP.

• Fund Management Fees:
  This is the fees levied for management of the fund. If you opt for a growth/actively managed fund the fees will be higher while it be less for a passively managed fund.
• Mortality Charges:
  These charges cover the cost of insurance coverage and depend on number of factors such as age, amount of coverage, state of health etc.
• Policy Administration Charges:
  This is the charge for administration of the plan and is levied by cancellation of units.

• Surrender Charges:
  Deducted for premature partial or full encashment of units. Surrender charges are very steep during the initial three years of the policy period. When you buy a ULIP, make sure that you dont need to surrender it within next five years.
• Fund Switching Charge:
  You have the flexibility to switch from a passively managed fund to an actively managed fund, debt to growth fund etc. Usually a limited number of fund switches are allowed each year without charge, with subsequent switches, subject to a charge.
• Service Tax Deductions:
  Service tax is deducted from the risk portion of the premium.