Planning to Invest in ULIPs? Understand the Charges

A ULIP insurance plan is preferred by people, specifically when the market is performing better. The dual benefit of a life insurance cover with a set of investment plans makes a ULIP plan the best choice for an insurance seeker. These plans reap the benefits of upward market trends and are the best option to channel savings towards investments. Some of the best ULIP funds that have performed the most can be known by checking them online. Apart from this, the ULIP plans offered by  Tata AIA life insurance policy plans or other companies are worth going for.

However, it is not the case that a part of the premium paid actually goes towards the purchase of debt and other securities. The user has to bear some specified ULIP charges before the remaining sum is actually invested towards investment instruments.

After understanding ULIPS and its benefits, let us now understand in detail the ULIP plan charges that a buyer has to bear for a ULIP insurance policy:

ULIP Charges that You Need to Know

Here are the ULIP charges that you need to know:

  • Fund management charge

These charges are quite similar to the charges imposed in the case of a mutual fund instrument. These are levied for the purpose of managing various funds by the insurance provider. The insurer can charge nothing more than 1.35% per annum as per the regulatory guidelines by the IRDAI.

  • Premium allocation charges

These are the initial charges that the insurer levies at the time of issuing the policy. The charge is deducted as a percent from the first premium paid and includes fees such as the cost of underwriting, agent’s commission, medical expenses, etc. Once deducted, the remaining value is invested in the chosen fund.

  • Administration charges

The insurance provider deducts administrative expenses every month for maintaining the ULIP plan, such as paperwork, premium intimation cost etc. The charges under this head are either constant all throughout or progressive at a predefined rate.

  • Surrender charges

A user has to bear these charges if they withdraw the ULIP plan before the due date, i.e., mostly 5 years in many cases. The charges are generated as a percentage of the premium or fund value and must be paid for a duration of 4 years before the lock in period. However, these charges cease to exist after the fifth year of the ULIP plan.

  • Switching charges in ULIP insurance

A ULIP plan gives the liberty to switch between different investment options under the purchased cover. These switches, however, are not cost-free entirely and demand a required amount after some maximum free switches are allowed. The user can choose to switch between types of instruments, such as debt or equity, under the given plan.

  • Mortality charges

These are monthly charges imposed for providing death cover to the insured. Since a ULIP plan also has a life insurance element attached to it, these charges are similar to any other life insurance product and are calculated on the basis of one’s age, health risk, sum assured etc.

  • Premium redirection charges

These are charged if the person wishes to divert future premiums towards a different fund option without altering the current fund structure. However, the insurer grants some minimum free redirections, after which the charges are applicable as per the given policy.

  • Partial withdrawal charges

The user, under a given ULIP policy, has the right to withdraw funds partially after the lock-in period of 5 years. These withdrawals are initially free of any charges upto a specified number of years. It is only after the maximum allowed cost-free withdrawals that the insurer levies a charge per withdrawal.


ULIP plans offer the best insurance cover for anyone seeking a life cover policy along with proper mobilisation of savings. The market assists in growing the savings money over time, but this does come with certain costs. One should have adequate knowledge about the imposition of such costs, which would facilitate getting into a better policy deal.

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