Expenses involved in ULIP

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Expenses involved in ULIP

Posted On : Sep-28-2010 | seen (382) times | Article Word Count : 549 |

ULIPs help you to manage your risk return profile. With the double advantage of security and investment, ULIPs lately have become the most popular insurance product from the available range of life insurance policies.

Unit linked insurance plans are popular life insurance products, but it is important to understand all the expenses involved before investing in them. This is so because only after accounting for the charges will the money be invested in the plan. Although each insurance company has its own cost structure, the primary expenses common to all ULIP products have been discussed below.
Premium Allocation Charge (PAC) – includes the commission of the distributor and initial expenses incurred by the insurer in issuing the life insurance policy. It is deducted from the premium paid and only then the balance is invested in the fund. Under current practise PAC is quite high in the first year of the policy but tapers off subsequently. However, according to new guidelines issued by Indian Regulatory and Development Authority (IRDA) PAC will have a cap of 4% from September 1, 2010.
Fund Management Charge - is for managing your fund. It is computed as a percentage of the Net Asset Value of the fund on a daily basis and adjusted in the unit price. It usually varies with the type of fund - equity or debt, and is generally higher for equity funds.
Policy Administration Charges - go toward general services provided by an insurance company and are usually charged monthly at a flat rate or may vary at a pre - determined rate. It is charged by cancellation of units.
Mortality Charge - goes towards providing the life cover. It depends on the difference between sum assured and the fund value and is charged by cancellation of units. If at anytime the fund value exceeds the sum assured then this charge ceases. It varies according to the age, gender and health of the policy holder.
Miscellaneous Charges - include charges for any alterations in the policy plan during its tenure like an increase or decrease in the amount of premium, sum assured etc.
Rider charges – In case of opting for add-ons or riders like premium waiver, accidental death etc. extra amounts are charged.
Surrender Charge - In case of terminating the policy (withdrawal of funds) before the maturity of the plan, a surrender charge is levied. It will vary with the number of years that have elapsed at the time of surrender.
Partial Withdrawal Charge – is for part redemption of funds during the term of the plan.
Switching Charge - is that which applies if a policy holder wants to alter the fund allocation, for e.g. increasing the equity allocation from debt or vice - versa. Usually a few switches each year are allowed for free with the subsequent switches being charged. An insurance company may or may not levy this charge.
For the complete knowledge of all charges involved in a policy being considered, read the brochure of each plan. To facilitate the full understanding of a plan and its implications, Indian Regulatory and Development Authority has made it mandatory for insurers to accompany each plan with a sales benefit illustration which indicates a year by year detail of how all charges are deducted and the amount that is actually invested. As each ULIP has varying charges and terms and conditions it is prudent to carefully scan and understand them and then invest.

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<h1>Expenses involved in ULIP</h1> Author: <a href='http://www.articleseen.com/profile_Sanjay Mathew.aspx'>Sanjay Mathew</a> Unit linked insurance plans are popular life insurance products, but it is important to understand all the expenses involved before investing in them. This is so because only after accounting for the charges will the money be invested in the plan. Although each insurance company has its own cost structure, the primary expenses common to all ULIP products have been discussed below.
Premium Allocation Charge (PAC) – includes the commission of the distributor and initial expenses incurred by the insurer in issuing the life insurance policy. It is deducted from the premium paid and only then the balance is invested in the fund. Under current practise PAC is quite high in the first year of the policy but tapers off subsequently. However, according to new guidelines issued by Indian Regulatory and Development Authority (IRDA) PAC will have a cap of 4% from September 1, 2010. 
Fund Management Charge - is for managing your fund. It is computed as a percentage of the Net Asset Value of the fund on a daily basis and adjusted in the unit price. It usually varies with the type of fund - equity or debt, and is generally higher for equity funds. 
Policy Administration Charges - go toward general services provided by an insurance company and are usually charged monthly at a flat rate or may vary at a pre - determined rate. It is charged by cancellation of units.
Mortality Charge - goes towards providing the life cover. It depends on the difference between sum assured and the fund value and is charged by cancellation of units. If at anytime the fund value exceeds the sum assured then this charge ceases. It varies according to the age, gender and health of the policy holder. 
Miscellaneous Charges - include charges for any alterations in the policy plan during its tenure like an increase or decrease in the amount of premium, sum assured etc.
Rider charges – In case of opting for add-ons or riders like premium waiver, accidental death etc. extra amounts are charged. 
Surrender Charge - In case of terminating the policy (withdrawal of funds) before the maturity of the plan, a surrender charge is levied. It will vary with the number of years that have elapsed at the time of surrender.
Partial Withdrawal Charge – is for part redemption of funds during the term of the plan.
Switching Charge - is that which applies if a policy holder wants to alter the fund allocation, for e.g. increasing the equity allocation from debt or vice - versa. Usually a few switches each year are allowed for free with the subsequent switches being charged. An insurance company may or may not levy this charge.
 For the complete knowledge of all charges involved in a policy being considered, read the brochure of each plan. To facilitate the full understanding of a plan and its implications, Indian Regulatory and Development Authority has made it mandatory for insurers to accompany each plan with a sales benefit illustration which indicates a year by year detail of how all charges are deducted and the amount that is actually invested. As each ULIP has varying charges and terms and conditions it is prudent to carefully scan and understand them and then invest.
About the Author: We represent one of the top life insurance company India. Our product ranges from life insurance, <a rel="nofollow" href="http://www.inglife.co.in/productcenter/productcenter-retirement-goldlife.shtml">pension plan</a>, child education plans and many other financial planning products. Our online advisers and calculation tools will help you to pick the best <a rel="nofollow" href="http://www.inglife.co.in/pua/index.aspx">insurance policy</a> that meets your requirement. Article Source: <a href='http://www.articleseen.com/Article_Expenses-involved-in-ULIP_35003.aspx'> http://www.articleseen.com/Article_Expenses involved in ULIP_35003.aspx</a>

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We represent one of the top life insurance company India. Our product ranges from life insurance, pension plan, child education plans and many other financial planning products. Our online advisers and calculation tools will help you to pick the best insurance policy that meets your requirement.

Keywords : life insurance India, financial investment planning, ulip, pension scheme, pension plan, insurance policy, child education, l,

Category : Finance : Insurance

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