Keeping your hard-earned money sitting idle is never a good idea. Instead, you can consider using it to grow a fortune as well as ensure the financial protection of your loved ones. Unit-Linked Insurance Plan is one of the most popular investment options today.

ULIP comes with certain costs. Thanks to the Insurance Regulatory and Development Authority of India (IRDAI), the ULIP charges are well-structured. Read on to know about them in detail.

  1. Fund management charges

When you put money in a ULIP fund, the insurance provider invests in different instruments to offer you the expected returns. This process requires thorough planning for minimizing your risks while building a significant corpus. Insurers have fund managers who handle the investments, and you need to pay an additional cost for this service, known as fund management charges. IRDAI has capped this expense to a maximum of 1.35% of the total fund value per year. After deducting this cost, the insurer calculates the ULIP NAV, which is the Net Asset Value. 

  1. Premium allocation charge

When you buy ULIP, the insurer usually incurs certain expenses initially. These include distribution fees, medical costs, and underwriting charges. You have to pay these ULIP charges in the form of a direct deduction from the premium. After the subtraction, the insurer invests the balance amount in your selected funds. 

  1. Mortality charge

ULIPs offer double benefits, which include life insurance and investment. When you purchase ULIP, it ensures that the insurance provider will pay your nominees a specific amount in your absence. You have to pay the insurer a fee known as the mortality charge for this service. The insurer deducts this cost throughout your policy tenure. These days, some insurance companies return the amount when the ULIP matures.

  1. Surrender charges

ULIPs come with a five-year lock-in period, as it is a long-term option. It is advisable that you continue paying the premium during this time to benefit the most out of your ULIP NAV. However, suppose you do have to surrender the policy during this tenure due to any emergency, the insurance provider will levy a penalty, known as surrender charge or premium discontinuance charge. If you surrender the ULIP after the lock-in term, the insurer does not charge any penalty.

  1. Policy administration charges

During your policy tenure, the insurer needs to provide you with specific services, such as paperwork, workforce, record keeping, and more. For this, you have to pay policy administration charges every month. 

  1. Rider charges

Insurance policies come with riders, which allow you to protect your future with additional benefits. When buying ULIPs, you can include specific riders that can enhance your existing cover. For this, you have to pay extra charges in form of a higher premium. 

  1. Top-up charge

During your policy period, you can always invest additional money into the fund over the regular premium, known as a top-up. This will help you grow your accumulated wealth even further. However, the insurer may charge you a fee for the top-up investment.  


  1. Fund switching charge

ULIP fund managers invest your premium in different types of funds. The policy comes with the flexibility of you deciding how to allocate the funds. Moreover, you can move your investments from one fund to the other during the policy period. The insurer will charge a switching fee in that case

When choosing a policy, you can use a ULIP calculator to determine the estimated corpus that you will earn over a long period. However, it is also essential to keep these charges in mind to know your total expenses.