A List Of The Types Of Charges In A Life Insurance Policy

IndiaFirst Life
• 18 Oct, 2024

Life insurance plans, especially Unit Linked Insurance Plans (ULIPs), come with various charges policyholders need to be aware of. Understanding these charges is essential for making informed decisions and effectively managing your investment.

Here, we break down the different types of charges associated with life insurance policies such as ULIPs.

Premium Allocation Charge

This charge in ULIPs is deducted upfront from the premium paid by the policyholder. It covers the initial expenses incurred by the insurer, such as distribution costs, underwriting, and administrative expenses. The remaining portion of the premium is then invested in the chosen funds.
Fund Management Charge

The fund management charge is a fee levied by the insurer for managing the investment portfolio within a ULIP. This charge is deducted as a percentage of the fund's value and is typically adjusted from the Net Asset Value (NAV) of the funds. It varies depending on the type of fund chosen, such as equity, debt, or balanced funds.
Mortality Charge

The mortality charge is the cost of providing life insurance to the policyholder. It is deducted monthly and is calculated based on factors such as the policyholder's age, health, and the sum assured. The charge ensures that the beneficiary receives the death benefit in the event of the policyholder’s demise.
Policy Administration Charge

This charge is levied for the administrative expenses of maintaining the life insurance policy. It is typically deducted on a monthly basis and may either be a flat fee or a percentage of the premium. The charge covers costs such as record-keeping, premium reminders, and policy servicing.
Surrender Charge

If the policyholder decides to exit the policy before the lock-in period ends, a surrender charge is levied. The surrender charge is deducted from the fund value, and the remaining amount is paid to the policyholder. This charge is designed to discourage early withdrawal from the policy.
Premium Redirection Charges

ULIPs offer various fund options for investing your premiums, allowing you to redirect them into different funds over time. While this flexibility helps align your investments with financial goals, insurers may charge a premium redirection fee for these changes.
Premium Discontinuance Charges

The Premium Discontinuance Charge applies if you stop paying premiums before the five-year lock-in period. When premiums are discontinued, your funds move to a Discontinuance Fund, and a charge is deducted, either as a percentage of the fund value or the premium, based on policy terms.

Knowing the charges included in your policy helps you better grasp what life insurance is, how it functions, and what are the total costs involved in the policy.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.