11 ULIP Charges Everyone Should Know

Created on 11 Feb 2021

Wraps up in 4 Min

Read by 2.5k people

Updated on 10 Sep 2022

What do you think is your key investment goal? A house? A car? Good health? Wealth? Well, investing in your life is the essential goal of any investment you make. As any responsible investor, you should also set aside a specific portion of your monthly income for your goal-based investments. 

Unit Linked Insurance Plans (ULIPs) have become popular and preferred modes of 'investing for life' goals. ULIPs serve dual purposes – insurance and investment. Because of the investment component, ULIPs are subject to varied risk factors as the return becomes directly proportional to the existing market conditions. 

ULIPs are offered by many insurance companies with varying fee structures. It is a prudent practice to understand the intricate fee structures before investing in these plans. 

In today's article, we will discuss major charges that form part of the ULIP fee structure.

Let's dive straight in.

Premium Allocation Charges in ULIP

The insurer charges this as a percentage of the first-year premium before allocating the policy. Premium allocation charges are the initial expenses incurred by insurance companies at the time of issuing policies. Cost of underwriting, medical expenditure, agent commission, etc., form the part of premium allocation charges. If you deduct these charges, the balance amount is invested in the fund you choose. Let's understand this with an example:

Total premium = Rs. 1,00,000

Premium allocation charges = 20%

Amount deducted as premium allocation charge = 1,00,000 x 20% = Rs. 20,000

Amount invested = 1,00,000 – 20,000 = Rs. 80,000

Administration charges in ULIP

These are the charges charged by the insurer every month for the administration of the policy. Administration charges are deducted by cancelling the units on a pro-rata basis from each of the funds selected by you. Administration charges can be constant throughout the tenure of the plan or may vary at a predefined rate.

Fund management charges In ULIP

The insurer charges these charges for managing the funds. Fund management charges are charged as a percentage of the fund's value and are deducted before the computation of the net asset value (NAV) of the fund. As per the IRDA regulations, fund management charges should not exceed 1.5%.

Surrender or Discontinuance charges in ULIP:

The surrender or discontinuance charges are levied when the insurer makes premature encashment of the ULIP. The IRDA regulations provide that an insurer may be allowed to recover only the acquisition costs incurred in the event of discontinuance of the plan. Surrender or discontinuance charges are levied as a percentage of the value of the fund and the premium. The range of surrender or discontinuance charges is Rs. 1,000 to Rs. 6,000 for the first four years. This range depends upon the premium paid by the person insured. No surrender or discontinuance charges are levied after the fifth year.  

Partial withdrawal charges in ULIP:

The investors cannot withdraw from ULIPs for the first three years. Subsequent to that, investors are allowed withdrawals subject to pre-specified conditions. Partial withdrawal charges are attracted when investors make withdrawals from ULIPs.

Mortality charges in ULIP:

The provision of death cover by the insurer attracts the mortality charges. The calculation of mortality charges involves considering factors like age, health risks, and the insurer issued the mortality table.


Switching Charges in ULIP

Under the ULIP system, the investors are allowed a limited number of free switches between various fund options annually. Once the free switches dry up, switching charges of up to Rs. 100-500 per switch are levied subject to the charge structure of the insurer.

Premium redirection charges in ULIP

Premium redirection charges are imposed by the insurer when the investor chooses to redirect his future premiums to other, less risky funds without altering the existing fund structure.

Guarantee charges in ULIP

The insurer levies the guarantee charges on the ULIPs of high-NAV guarantee type of funds. The insured person bears the costs of getting a guaranteed return. For example, when a ULIP promises returns of 125% after ten years, the insured person has to pay guarantee charges for the same.

Rider Charges in ULIP

The insured person may choose to have additional benefits added to the base plan. And as it happens in the case of additional features, additional rider charges are levied for the same. For example, one has to pay extra charges if he/she chooses a critical illness rider.

Miscellaneous charges in ULIP

Miscellaneous charges constitute a relatively meagre part of the overall fee structure of a ULIP. One of the instances where miscellaneous charges may be imposed is when the investor chooses to change the premium payment frequency from an annual basis to a quarterly basis.

Where can you get the details of these charges?

As we said initially, it is wise to read and understand the various charges forming part of the fee structure. But the question is – where do we find these details? Well, you may find the details in any of the following sources:


What is it?

Where can you get it?

Sales Benefit Illustration

A sales benefit illustration depicts all the charges applicable for the entire duration of the policy. The illustration aids in clearly understanding the charges deducted and the amounts invested in the funds chosen by the investor.

Investors can access sales benefit illustrations by requesting to the sales representative.


Product Brochure

A product brochure lists out all the applicable charges along with the reasons for their levy.

Product brochures can be downloaded from the insurer's website or can be requested from the sales representative.


Investors can always consult the advisors for a detailed understanding of the applicable charges throughout the term of the plan.

An advisor may have access to sales benefit illustrations and product brochures.

Closing remarks

Unit Linked Insurance Plans (ULIPs) are great investment options towards achieving your' investing for life' goals. However, it is always safe to have proper knowledge and understanding of the levied charges on the investment to maximize the benefits from the ULIP investment. Investors then have a more precise understanding of what charges they are paying and where their funds are invested.

Stay Positive, Test Negative!

Happy Investing.

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