What are various costs of Ulips?
In Ulips expenses do matter and can make a big difference in the IRR of the policy. Here’s a list of various charges: 1. Allocation charges: Also called premium allocation charge (PAC), it is deducted from the premiums paid to cover the marketing and distribution costs (including agents commission) of ULIPs. Usually in the initial 2-3 years, allocation charges are on the higher side (called front-loading) of charges. From 3rd or 4th year onwards, premium allocation is reduced to 2% – 5% in most of the Ulips. 2. Administration charges: These charges are deducted monthly on flat basis to meet the general administration and management costs of ULIPs. However, Some Ulips charge policy administration charge as a percentage of the annual premium amount (e.g. 2% of the annual premium) but adjust it from the fund value each month. 3. Mortality charges: This is the cost of life insurance cover provided to the insured. Mortality charge is a variable charge levied on monthly basis and depends on
