ULIP charges: where your premium actually goes
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 |
Why "zero allocation" isn't "zero cost"
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.