Understanding how your ULIP premium is utilised

When you invest in a policy or a fund, you are required to pay a certain amount towards it. This amount is known as a premium. The product stays operational as long as the compensation is spent on time. The bonus is utilized for many things in the policy or fund. When you invest in a product like a ULIP policy, the premium you pay is used for more than just sustaining the policy. Read on to learn how the tip gets used in ULIPs.

How Does Your ULIP Premium Get Utilized? | Tata AIA Blog

What is a ULIP?

A ULIP policy is a type of life insurance policy in which you get the dual benefits of investment and insurance in a single procedure. You get to invest in equity funds and debt funds. Equity funds are high-risk, high-return; debt funds are low-to-medium risk, medium-return funds. The investment is based on your risk appetite and your life goals.

Via insurance, your loved ones get financial protection from life risks. If the policyholder passes away suddenly during the policy term, the insurer will compensate the family with a death benefit. They can use this amount to manage daily expenses.

How is the premium in ULIPs utilized?

The premium that you pay towards your policy is utilized in the following ways:

1. For investment

When you invest in ULIPs, you can invest in equity, debt, or balanced funds. The investment you make should match your risk appetite and your requirements. The money that is required for investment is taken from the premium. A portion of the premium is used for investing the money in the funds of your liking. If you want to increase your investment amount at any point, you can easily do so with the help of a top-up premium.

2. For insurance

In ULIPs, your dependents get life protection coverage from different life risks. This protection is given in the form of a death benefit. If you pass away suddenly during the mid-term of your policy, the insurer will compensate them with the death benefit. The amount for this cover is deducted from the premium. When you buy the procedure, the life protection cover begins from Day 1.

3. For charges related to the policy

While different types of ULIPs are available for you in the market, the costs applied to them are common. Various directions get used to them. These charges are:

4. Policy administration charges

These charges are related to the management of your policy. Costs associated with the maintenance and paperwork of your policy are included.

5. Fund management charges

If you opt for a fund manager’s services to manage your investment, your insurer will charge you for availing of this service. Under this service, the fund manager will handle your funds and make decisions based on your instructions.

6. Premium allocation charges

This charge is related to the different expenses incurred when the policy is issued to you. These charges are related to documentation, medical paperwork, and other underwritings related to the procedure.

7. Mortality charge

As mentioned above, the dependents get a death benefit upon the passing away of the policyholder. A charge levied on this benefit is deducted from the premium. This charge is known as a mortality charge.

8. Switching charge

You have the option of reallocating your investment from one fund to another fund. This reallocation is known as switching. There are a limited number of free switches that you can do. After that, the insurer will charge you for switching your funds.

As you can see, this is how the premiums in ULIPs are utilized. If you want to purchase your policy online, you can use the ULIP plan calculator to see how much it would cost you based on your requirements. You can contact your insurance advisor to learn more about additional costs associated with ULIPs. You can get in touch with your insurance advisor to know more about other charges related to ULIPs.

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