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How ULIP Premiums are Utilised? A Detailed Guide

Unit Linked Insurance Plan is one of the best comprehensive life insurance policies that provide multiple benefits. It offers a life cover and market-linked returns on maturity. Though the ULIP charges are slightly on the higher side, it is certainly worth the investment considering the flexible features and benefits. Here is a detail about how your insurer utilises your ULIP policy premium payment.

What is a ULIP Plan?

ULIP plan is a comprehensive life insurance policy that offers a life cover and market-linked returns on maturity. The investment for market-linked returns is based on your risk profile. You can invest in equity, debt, and balanced funds. 

Insurers also offer an option for you to switch between the fund options to secure the investment and the returns based on the prevailing market conditions. 

How is the Premium Utilised in the ULIP Plan?

As the ULIP plan provides dual benefits, one portion of the premium is utilised by your insurer to provide a life cover to secure your family, and the other portion is utilised for investing in the financial market based on your risk appetite. In addition, there are various other associated charges to help manage the ULIP plan judiciously. You can utilise the ULIP online premium payment mode for faster processing and management. 

Here is a detail about some of the most common charges:

  • ULIP Premium Allocation Charges – The premium allocation charges refer to the payment for allocating the policy to you. It includes underwriting charges, medical test charges, commission charges, etc., 
  • Mortality charges – Mortality charges are levied to provide life cover. It will be based on your age, sum assured, etc. The fund’s value decreases slightly in proportion to the mortality charges associated with the ULIP plan. Some insurers provide the mortality charges levied on maturity.
  • Fund management charges – Insurers regularly levy the fund management charges to manage your fund options in the ULIP plan. It is capped at 1.35% of the fund value annually.  
  • Switching charges – Insurers provide a specific number of free switches to different fund options. On the expiry of the free switches, you can still switch between the fund options at a very lower cost ranging between ₹100 and ₹500.
  • Policy administration charges – The insurer levies these charges to cover the administrative costs associated with the policy. It remains the same throughout the policy term or changes at a specified rate based on the insurer’s policy conditions.
  • Premium redirection charges – Insurers levy the premium redirection charge when switching from a high-risk fund to a low-risk one without changing the existing fund structure.
  • Partial withdrawal charges – Partial withdrawals are applicable after the five-year lock-in period. Some insurers levy a certain charge for the partial withdrawal based on the policy conditions. 
  • Rider charges – In addition to the life cover, if you prefer purchasing an optional rider to enhance the financial benefits, you have to pay additional charges to avail of the rider benefits. It is deducted from the premium regularly. 

Other miscellaneous charges are based on the individual insurer’s policy conditions. It is also important to note the GST on ULIP premium for better planning of the income and investment returns. When you purchase a ULIP plan, try to opt for an online policy such as the Tata AIA life insurance policy. It will help you manage the fund options and track its returns timely for your investment needs. 


ULIP plan provides distinct benefits that offer a life cover with market-linked returns. Therefore, the premium you have paid towards the policy ensures the lump sum death benefit and the returns on investment in financial securities. Insurers levy charges such as premium allocation, policy administration, fund management, mortality, switching, etc. You must understand how the premium for the ULIP plan is utilised for ensuring the required benefits.