10 ULIP Charges You Should Know About When Planning To Invest In One

10 ULIP Charges You Should Know About When Planning To Invest In One

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Are you considering investing in a Unit Linked Insurance Plan (ULIP)? If so, congratulations on taking a step towards securing your financial future. ULIP is a versatile financial product that offers both insurance coverage and investment opportunities. It is a type of insurance plan offered by insurance companies wherein a portion of the premium paid by the policyholder is allocated towards providing life insurance coverage, while the remaining amount is invested in diverse investment options like equities, bonds, or mutual funds.

ULIP Charges

Before you decide on purchasing a ULIP plan, it’s essential to understand the various charges associated with ULIPs. In this blog, we will break down the 10 ULIP charges you should be aware of when planning to invest in one:

  1. Premium Allocation Charges:  When you invest in a ULIP, a portion of your premium goes towards paying various charges, including premium allocation charges. This charge is deducted upfront, reducing the amount that gets invested in your chosen funds. It covers various expenses such as administrative expenses, cost of underwriting, medical expenses, agent’s commission, etc.
  2. Policy Administration Charges: ULIPs come with policy administration charges, which are levied for the maintenance of your policy. These charges can be either monthly or annually and cover the cost of paperwork, record keeping, and customer service. Unlike the premium allocation charge, administration charges are not deducted by reducing the premium, but by cancelling the units from your investment funds proportionately.
  3. Mortality Charges: Mortality charges are imposed by the insurer for providing death cover to the insured. They are calculated based on your age, health, and the sum assured. These charges ensure that the life insurance coverage remains in force, and they are deducted regularly to cover the risk.
  4. Fund Management Charges: ULIPs offer various fund options for investment. Fund management charges are incurred for managing and maintaining these funds. These charges are calculated as a percentage of the fund value and deducted before computing the net asset value of the fund. As per the rules set by IRDAI, the fund management charge cannot be more than 1.5%.
  5. Surrender Charges: If you decide to exit your ULIP before a specified lock-in period, surrender charges may apply. These charges are designed to discourage premature withdrawals and can significantly reduce the amount you receive upon surrender. IRDAI has mandated only the recovery of the acquisition cost in the event of discontinuance of the policy.
  6. Switching Charges: ULIPs allow you to switch between different investment funds based on your financial goals and risk appetite. You are typically granted a fixed number of free switches between various fund options each year. After exhausting these free switches, each subsequent switch will incur charges. It’s essential to understand your policy’s switching charges to make informed investment decisions.
  7. Partial Withdrawal Charges: You can make partial withdrawals from your ULIP policy to meet financial needs subject to pre-specified conditions. However, there might be charges associated with these withdrawals. It’s essential to be aware of these charges and their impact on your overall returns.
  8. Premium Redirection Charges: Premium redirection allows you to change the allocation of your future premiums among different funds. Some ULIPs may charge a fee for this service. Understanding these charges can help you optimise your investment strategy.
  9. Guarantee Charges: While most ULIP plans offer returns tied to market performance, some investors prefer a guaranteed rate of return. To accommodate this, certain insurers apply guarantee charges, assuring a minimum rate of return for policyholders.
  10. Rider Charges: Similar to conventional life insurance policies, ULIPs offer policyholders the flexibility to select from a range of riders, including options like accidental death or critical illness coverage, among others. These riders enhance the overall life coverage, but they come with additional costs in the form of rider charges, imposed by insurers.

To make it easier for you to understand how these charges affect your ULIP, consider using a ULIP calculator. A ULIP calculator is a valuable tool that helps you estimate your potential returns after accounting for all the charges mentioned above. It allows you to make informed decisions about your investment strategy and financial goals.


In conclusion, investing in a ULIP can be a smart move, as it combines insurance coverage with investment opportunities. However, to maximise the benefits of your ULIP, it’s essential to be aware of the charges involved. By understanding and factoring in these charges, you can make informed decisions that align with your financial goals. Remember that while ULIPs come with charges, they also offer potential returns and tax benefits. So, it’s crucial to weigh the costs against the benefits and choose a ULIP that suits your financial needs and risk tolerance. Additionally, using a ULIP calculator can be a practical step towards achieving your financial goals while staying informed about the charges that affect your investment

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