Modern ULIPs are often marketed on "zero allocation charge." That's true, and it's also only one of several charges a ULIP can levy.
Last reviewed 26 August 2026. General education, not financial advice — verify anything specific against the current policy wording.
| Charge | What it's for | How it's usually taken |
|---|---|---|
| Premium allocation charge | Distribution/commission cost | Deducted from premium before the rest buys units — increasingly 0% on newer plans |
| Fund management charge (FMC) | Cost of managing the underlying fund | Adjusted daily within the fund's NAV; IRDAI caps this (commonly up to 1.35% p.a.) |
| Mortality charge | Cost of the life cover component | Deducted monthly by cancelling units, based on age and sum at risk |
| Policy administration charge | Running the policy/records | Deducted by cancelling units, usually monthly |
| Discontinuance charge | Penalty for exiting within the 5-year lock-in | Deducted if you stop paying and surrender within the lock-in period |
| Fund switching charge | Cost of moving between funds beyond the free-switch limit | Per switch, if you exceed the number of free switches allowed |
| Rider charge | Cost of any optional riders attached | Deducted by cancelling units, monthly |
Allocation charge is just the most visible one, because it's taken up front. FMC and mortality charge are taken continuously, invisibly, inside the fund's NAV or as monthly unit deductions — you never see them as a line item, which is exactly why they're easy to under-notice. Add them across 15-20 years and the total charge load, not the allocation charge alone, is what actually determines your real return relative to a plain low-cost index fund.
Ask for (or calculate) the total reduction in yield over the full policy term — not just the headline allocation percentage — before comparing a ULIP against a mutual fund plus term combination.