1. Premium Allocation Charge:
1.1 This is a percentage of the premium appropriated towards charges from the premium received. The balance known as allocation rate constitutes that part of premium which is utilized to purchase (investment) units for the policy. The percentage shall be explicitly stated and could vary interalia by the policy year in which the premium is paid, the premium size, premium payment frequency and the premium type (regular, single or top-up premium).
1.2 This is a charge levied at the time of receipt of premium.
1.3 If Actuarial Funding is adopted, this charge may also include an initial management charge, which is levied on the units created from the first years’ premium, for a specified period.
1.4 Example: If premium = Rs.1000 & Premium Allocation Charge: 10% of the premium; then the charge is: Rs.100 and Balance amount of premium is Rs.900 and is utilized to purchase units.
2. Fund Management Charge (FMC):
2.1 This is a charge levied as a percentage of the value of assets and shall be appropriated by adjusting the Net Asset Value as prescribed in para 10.5 of PART-I.
2.2 This is a charge levied at the time of computation of NAV, which is usually done on daily basis.
2.3 Example: If Fund Management charge (FMC) is 1% p.a. payable annually; Fund as at 31.3.2004 before FMC is Rs.100/- and Fund after this charge is Rs.99/-.
3. Policy Administration Charge:
3.1 This charge shall represent the expenses other than those covered by premium allocation charges and the fund management expenses. This is a charge which may be expressed as a fixed amount or a percentage of the premium or a percentage of sum assured. This is a charge levied at the beginning of each policy month from the policy fund by canceling units for equivalent amount.
3.2 This charge could be flat throughout the policy term or vary at a pre-determined rate. The pre-determined rate shall preferably be say an x% per annum, where x shall not exceed 5.
3.3 Example: Rs.40/- per month increased by 2%p.a. on every policy anniversary.
4 Surrender Charge:
4.1 This is a charge levied on the unit fund at the time of surrender of the contract.
4.2 This charge is usually expressed either as a percentage of the fund or as a percentage of the annualized premiums (for regular premium contracts).
5. Switching Charge:
5.1 This a charge levied on switching of monies from one fund to another available within the product. The charge will be levied at the time of effecting switch and is usually a flat amount per each switch.
5.2 Example: Rs.100 per switch.
6. Mortality charge:
6.1 This is the cost of life insurance cover. It is exclusive of any expense loadings levied either by cancellation of units or by debiting the premium but not both. This charge may be levied at the beginning of each policy month from the fund.
6.2 The method of computation shall be explicitly specified in the policy document. The mortality charge table shall invariably form part of the policy document.
6.3 Mortality rates are guaranteed during the contract period, which are filed with the Authority.
7. Rider premium charge:
7.1 Rider cover cost: This is the premium exclusive of expense loadings levied separately to cover the cost of rider cover levied either by cancellation of units or by debiting the premium but not both. This charge is levied at the beginning of each policy month from the fund.
8. Partial withdrawal charge:
8.1 This is a charge levied on the unit fund at the time of part withdrawal of the fund during the contract period.
9. Miscellaneous charge:
9.1 This is a charge levied for any alterations within the contract, such as, increase in sum assured, premium redirection, change in policy term etc. The charge is expressed as a flat amount levied by cancellation of units.
9.2 This charge is levied only at the time of alteration.
9.3 Example: Rs.100/- for any alteration such as increase in sum assured, change in premium mode etc.
