Policy Administration Charges in ULIP

What are Policy Administration Charges in ULIP?

Policy administration charges in a Unit Linked Insurance Plan (ULIP) are fees levied by the insurer to cover the ongoing administrative expenses of maintaining your policy. These charges are typically levied monthly and may be fixed or variable, depending on the specific policy and insurer. 

These expenses go beyond those covered by premium allocation and fund management charges and typically include costs related to policy maintenance, record-keeping, customer service, and issuing policy statements.

Features of Policy Administration Charges

• Frequency:
  These charges can be one time or deducted every month from your policy’s fund value depending on the policy.
• Fixed or Variable charges:
  The charge can be:
  • A fixed amount per month,
  • A percentage of the annual premium,
  • Or a percentage of the sum assured, depending on the policy terms.
• Deduction Mechanism:
  Policy administration charges are deducted from units held by the policy holder, they are deducted by redeeming units from your policy’s fund value, which reduces the number of units you hold.

Example:

Let's say Mr. X bought an ULIP for an annual premium of Rs. 1,00,000 for 5 years and the policy administration charge is 0.5% of the basic annual premium (subject to a maximum of Rs. 3,000), then:

• Annual policy administration charge = Rs. 500
• Monthly deduction = Rs. 42 (Rs. 500/12)
• Let's say the current unit price is Rs. 100, then 0.42 units are cancelled this month to recover this charge. 
• So, if you have have 1000 units in the first month, next month you will have 999.58 units. 

Regulation and Taxes

• The Insurance Regulatory and Development Authority of India (IRDAI) regulates policy admin charges of ULIPs in India.
• Policy administration charges are subject to Goods and Services Tax (GST). From the above example, Monthly deduction is Rs. 42 against policy admin charges, including GST i.e. 18% it would be Rs. 49.56. So post deducting policy admin charges inc GST, Mr. X would be left with 999.5 units for the next month.

How to avoid Policy Adminstration charges?

Best way avoid policy Administration charges buying ULIPs online, but not all online platforms nor all policies available online will not have policy admin charges.

Please go through the policy document before purchasing it, or even when you realise after purchasing the policy, you may withdraw and ask for refund before the FREE LOOK period (usually 30days for online purchased policies).

Please check ULIP policies in our website (Honvest), we only sell those ULIPs having no hidden charges and only those required charges to maximise your returns. contact us for an honest and spam free advice on ULIP polices.

Summary:

Policy administration charges in ULIPs are regular fees deducted to cover the insurer’s administrative costs for servicing your policy. They are typically deducted monthly by cancelling units from your fund and may be fixed or percentage-based, as specified in your policy document. 

Thanks,

Honest Team.