Unit Linked Insurance Plans or ULIPs is one of the finest forms of mutual funds clubbed with indemnity cover. However, unlike a mutual fund which comes with a single consolidated TER (Total Expenses Ratio), ULIPs have a long list of charges associated with them. The structure of charges for the best ULIP plans may differ from insurer to insurer, the standard list includes the below 8 charges:
Premium Allocation Charge (PAC) is lived as a fixed proportion of the premium received. Usually, PAC is charged at a higher rate in the starting years of a policy. PAC comprises initial and renewal costs and commission of the intermediary. The balance amount, after deducting PAC, is used to purchase units at the current NAV (Net Asset Value). For instance, if the PAC is 14% on a premium of Rs. 1 lakh per annum, then, Rs. 14,000 will be deducted towards PAC and the balance amount of Rs. 86,000 will be available for allocation into the funds.
Mortality charges are applied to offer the cost insurance coverage under a ULIP plan. This charge is decided on the basis of certain factors, such as age, sum assured etc. Mortality charges are deducted proportionately, i.e. on a monthly basis from each of the ULIP funds you have.
Insurance providers charge a particular amount to maintain various funds in ULIPs. This is called Fund Management Charge (FMC). It is deducted before arriving at the Net Asset Value, which is adjusted from NAV on a daily basis. The maximum cost allowed is 1.35% per annum of the fund value. Usually, the insurance companies levy the maximum allowed charge in equity funds. However, the charge in the non-equity fund is comparatively low.
As the name suggests, this fee is payable for the administration charges of a ULIP policy, and are charged monthly for cancelling units from the funds. These charges could be flat all through the policy tenure or may vary at a pre-decided rate.
Updated by: Newsner source 2019-07-09 4:43 PM