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ULIP: A Good Product Unfairly Judged for Its Charges

Unit-linked insurance plans (ULIPs) are life insurance plans that allow you to be exposed to market-linked securities. The premiums paid are invested in market-linked funds that, in turn, invest in different types of funds. For instance, equity funds under ULIPs invest their portfolio in equity-oriented securities like stocks. Similarly, debt funds invest in debt instruments like bonds, deposits, etc.

Unit-linked insurance plans can help you grow your wealth with market-linked returns. You can invest your premium in a fund that. Read More

matches your risk appetite and investment strategy and allows it to grow over time. The tax benefits add to savings, and the switching facility allows you to manage your investments with changing market movements and risk-taking ability.

ULIPs have different types of charges associated with them. These charges are either deducted from the premium that you pay or from your fund value. Hence, the importance of demystifying ULIP charges has grown so that you can make an informed decision. Let’s understand these charges – Read Less

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Written ByShruti gujarathi
AboutShruti gujarathi
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Shruti gujarathi has 5 years of experience in the BFSI sector, and as Manager- Digital Marketing at Bajaj Allianz Life Insurance, manages digital and content marketing. She has had hands-on experience in content strategy, performance marketing and Strategic Alliances over a career spanning 10 years.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 26th March 2025
Modified on: 1st April 2025
Reading Time: 11 Mins
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Demystifying ULIP charges

 

Here is a list of the common ULIP charges2 -

Type of charge

Meaning

Premium allocation charge

This refers to the portion of the premium allocated towards charges from the premium paid. In the case of unit-linked insurance products, the remaining amount, called the allocation rate, is the portion of the premium used to buy units in the policy’s fund. The allocation rate, which will be clearly specified, may vary depending on factors such as the policy year in which the premium is paid, the premium amount, and the type of premium

Mortality charge

This represents the cost of life or health insurance coverage. It does not include any additional expense loadings and is deducted through the cancellation of units. If applicable, this charge will be applied at the start of each policy month from the fund.

Fund management charge 

This charge is levied to manage the fund. It deducted at the time of computing the Net Asset Value .

Policy administration charge

This charge is levied for administering the policy and is levied by cancelling the units in the fund value. It could be a fixed flat charge throughout the policy term or vary at a predefined rate

Discontinuance/surrender charges

This is a fee applied to the unit fund for individual unit-linked insurance products when the policyholder chooses to surrender or discontinue the contract, as outlined in the regulations. However, no charges are applicable to top-up premiums.

Switching charges

This is a fee applied when switching from one segregated fund to another within the product. Any charge for each switch, if applicable, will be incurred at the time the switch is made.

 

Reasons why ULIPs are unfairly judged:

 

Given the different charges under ULIPs, many individuals might feel that a large part of their premium or fund value is being used up for charges. This might affect and reduce potential returns. Perhaps this is why ULIPs are unfairly judged for having high charges that erode possible returns.

This is why demystifying ULIP charges comes in handy so that you, as the investor, are entirely aware of the potential risks, charges, etc., before investing. This would also help you align the same with your long-term financial goals.

 

Busting ULIP charges myths:

 

While it is true that ULIPs have different types of charges, it is wrong to judge them as being high-charge products. Here are some reasons why –



  1. There’s a cap on the charges:


    ULIPs if invested for longer period that is for 10-15 years will yield lower charges. The Insurance Regulatory and Development Authority of India (IRDAI) has placed restrictions on the maximum charge a ULIP can levy. According to IRDAI’s guidelines, on maturity, the difference between the gross and net yield of a ULIP cannot be more than 4% at 5th policy year and it reduces to 2.25% at 15th policy year. Hence, saying that ULIPs have high charges will be unfair.Gross yield is the total return earned from a ULIP, and net yield is the return adjusted for ULIP charges.

  2. Some plans refund some of the charges:


    New-age ULIPs or 4G ULIPs represent an advanced version of traditional ULIPs, offering enhanced benefits and additional features. These modern policies signify a significant progression in the life insurance industry. Building on the strengths of previous plans, fourth-generation ULIPs introduce innovative features that transform how policyholders perceive both investments and insurance. The impact of ULIPs on the evolution of life insurance can be attributed to their cost-effectiveness and the inclusion of the latest features.

  3. Some plans have a minimal charge structure:


    Many online ULIPs levy minimal or no premium allocation charge. Moreover, under some plans, there’s no policy administration charges which further reduces the charge structure and makes the plan cost-effective.

  4. You can minimise some of the charges:


    In some cases, you can control the charges applicable under the ULIP plan. Here are some tips on how –

    • Look for ULIPs with minimum premium allocation and administration charges1.
    • Choose ULIPs that refund the mortality charges on maturity.
    • Avoid surrendering the policy within the lock-in period of 5 years to avoid incurring the discontinuance charge.
    • Compare the available ULIPs basis their charge structure and choose a plan with the lowest charges.
    • Keep your fund switching  and partial withdrawals within the free limit to avoid additional charges.

 

Demystifying ULIP charges and enjoying the benefits:

 

Don’t judge ULIPs unfairly for the charges involved. The charges are predefined, and once you are aware of them, you can choose the right plan according to your needs and enjoy the benefits.

So, understand the different types of charges associated with ULIPs and why they are charged. Assess the charge structure of any ULIP that you want to buy and see how it can potentially affect your returns. A low-charge structure is a better alternative to saving on expenses without compromising on benefits.

So, choose ULIPs for the different types of financial goals that you might have and create the desired corpus. The tax efficiency of the ULIP can far outweigh the low charges that the plan levies, which give you good tax and inflation-adjusted returns.

 

FAQs


  1. What are some of the common charges under ULIPs?


    Some of the common ULIP charges are as follows -

  2. What are some of the drawbacks of ULIPs?

    ULIPs do not guarantee returns. This is one of the drawbacks of the plan. The returns depend on market movements and can be volatile in the short term.


  3. Do ULIPs levy very high charges?


    Though there are different types of charges associated with Unit Linked Insurance Plan, the overall charge structure is not very high. The IRDAI (Insurance Regulatory and Development Authority of India) has capped the maximum charge that ULIPs can levy making them a cost-effective option for wealth creation.


 

 

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IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

 The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read the sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale. Bajaj Allianz Life Insurance Company Ltd., Regd. office Address: Bajaj Allianz House, Airport Road, Yerawada, Pune - 411006, Reg. No.: 116, CIN: U66010PN2001PLC015959, Call us on toll free No.: 1800 209 7272, Mail us: customercare@bajajallianz.co.in

BJAZ-WEB-EC-13411/25

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

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Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Bajaj Allianz Life Insurance Company Limited is only the name of the Life Insurance Company and Bajaj Allianz Life Goal Assure II- A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN No.: 116L180V02) is only the name of the unit linked insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

Bajaj Allianz Life Goal Assure II - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L180V02)

**Return of Mortality Charges at Maturity (ROMC) is payable at maturity, provided all due premiums have been paid

Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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