“When you invest your money, you are buying a day that you don’t have to work.”- Aya Laraya

Investing your hard-earned money is something that everyone should do. There are so many benefits of investing that it makes no sense not to get started. And when it comes to investing, new-age ULIPs have known to garner investor’s attention these days.

The reason for this is- ULIP plans in India offer dual benefits of insurance and investment. Thus, alongside the insurance protection, ULIPs allow you to participate in equity and debt funds, thereby, creating the possibility of high returns.

That said, before you invest in any ULIP plan, there are certain charges that you must know about. Read on to know better.

1. Premium Allocation Charge

Premium allocation charge is deducted from the policyholder’s premium to recover the initial expense incurred towards issuing the ULIP plan such as the cost of underwriting and distributor fee. This specific charge is levied as a percentage of premium, and the remaining premium gets invested in the funds of your choice. However, many insurers today levy zero allocation charges, which in turn helps your wealth grow faster.

2. Policy Administration Charge

Policy administration charge is deducted by the insurance company towards the administrative expenses incurred towards the maintenance of the ULIP plan. Meaning, the cost incurred towards premium intimation, paperwork etc. are covered under this head.

This charge is levied on a monthly basis and could either be flat throughout the policy term or may vary at a pre-determined rate. But, the good news is, many insurers like Future Generali, do not levy any policy administration charge. Therefore, buying such ULIP plans can help you save a good amount of money.

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3. Fund Management Charge

This is an aggregated charge levied by the insurer for management of your ULIP fund(s). This charge is adjusted from NAV on a daily basis as it is deducted before arriving at the NAV. As per guidelines given by IRDAI, the maximum cap on this charge is 1.35 percent per annum of the fund value.

4. Mortality Charge

Apart from providing the opportunity to invest in markets and generate market-linked returns, ULIP plans in India also provide life cover. This means, the insurance company provides financial compensation to your family in case of your untimely demise. Therefore, insurers levy a mortality charge for providing the insurance protection. Mortality charge is calculated after factoring in the coverage amount, age, and health.

5. Fund Switching Charge

ULIP plans in India not only allow you to invest your money in multiple fund options but also allow you to move your money between various funds. This is called ‘Fund Switching’. For instance, a person who has invested his entire money in equity funds (100 percent exposure to equity) can switch his funds to a balanced ULIP (with 60 percent equity and 40 percent debt exposure).

Generally, insurers allow a certain number of free switches in a year. For additional switches, you are required to pay a minimal charge of Rs. 100 or more per switch.

6. Top-up Charge

One of the unique features of ULIPs is that it allows you to invest your surplus money in the fund. This amount is over and above the regular premiums that you pay, and it essentially helps to grow your wealth by increasing the amount of your corpus. Insurers may deduct a specific percentage from the top-up amount as charges.

7. Surrender or Discontinuation Charge

ULIP plans in India have a lock-in period of 5 years, which allows policyholders to reap the long-term investment benefits. However, if you choose to surrender your ULIP plan before the lock-in period ends, there will be a surrender charge, or a policy discontinuance charge levied.

This charge varies depending on the year in which you surrender the policy and is calculated based on the percentage of the annual premium. Moreover, the maximum amount that any insurance company can charge is defined by the guidelines set by the IRDAI.


Now that you are aware of these charges, choose the insurer that levies minimum charges. However, before you invest, understand the past performance of funds you are investing in. Finally, be a smart investor and invest for a long-term to reap the maximum returns from your ULIP plan.

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January 2021