Danny white 
The ULIP plan meaning is a Unit Linked Insurance Plan (ULIP), and it is primarily an insurance instrument. The policy offers dual benefits of life insurance cover and investments all under a single plan. Here, a part of the premiums paid is used for life insurance; whereas the remaining amount is invested in funds of your choice.
You can invest in equity-oriented funds, debt funds, or a combination of the two. While there are many benefits of investing in ULIPs, there is one thing that people are unaware of – the ULIP charges. There are certain predetermined fees and charges associated with any ULIP investment. The Insurance Regulatory and Development Authority of India (IRDAI) defines these charges and have a fixed percentage.
Some of the ULIP charges that you should know about are as follows –
- Fund management charges
- Premium allocation charges
- Fund switching charges
- Surrender charges
- Mortality charges
- Administration charges
- Premium discontinuance charges
- Premium redirection charges
In this article, we are particularly discussing Mortality Charges in detail. So, let us begin.
Mortality Charges in ULIPs
As explained earlier, ULIPs are an insurance instrument and offer life insurance coverage to the investor. Much like in any other insurance option, you have to pay the premiums towards the said coverage here as well. This is known as mortality charges in ULIP investments. So, the younger you are, the lower is the insurance or mortality charge in ULIPs.
How to calculate mortality charges in ULIPs?
You can use the following formula to calculate the mortality charges in your ULIP investment.
Mortality Charge in ULIP = Attained age x Sum at risk / 1000 x 1/12
Here, the attained age is referred to as the date of calculation of the ULIP investment. The sum at risk is the amount that your insurer is liable to pay to the beneficiaries of the policy in case of your death. The mortality charges are allocated every month and deducted directly from your fund value. Therefore, the older you are, the higher the mortality charge you will have to pay on the ULIP investment.
Benefits of Buying ULIPs with Return of Mortality Charges
Let us assume that you bought ULIPs with life insurance coverage of INR 10 lakh with INR 1 lakh annual premium. Further, let us assume that you die after paying only the third quarterly instalment, which is INR 75,000. In such a situation, the insurer will still pay the beneficiaries of the policy with the promised life insurance cover of INR 10 lakh.
Hence, mortality charges in ULIPs cover this risk that the insurer takes. Moreover, the insurer returns the mortality charges when the policy matures. That way, your returns are enhanced when ULIP matures as it includes mortality charges as well.
Other ULIP Benefits
Some of the other ULIP benefits are explained as follows –
- The policy offers dual benefits of life insurance cover and wealth creation
- You have the liberty to choose the type of funds you want to invest in – debt funds, equity-oriented funds, or a combination of the two
- In case your investment portfolio is not performing as per your expectation, you can switch the funds within it for better returns in the long run
- The policy also offers tax benefits. The premiums paid towards ULIPs can be claimed for tax deductions under Section 80C of the Income Tax Act, 1961. Moreover, the maturity and death benefits received under the plan are tax-free under Section 10(10D)
In The End
Despite the number of ULIP charges deducted from the plan, ULIPs are one of the excellent investment instruments available in the market. Know that the policy earns reasonable returns in the long run, and hence it is advisable to be invested in long-term ULIPs.
