Home Finance A Guide to ULIPs – Features, Benefits, Fees and Charges

A Guide to ULIPs – Features, Benefits, Fees and Charges

A Guide to ULIPs

ULIPs, or Unit Linked Insurance Plans, are a type of investment product that combines the benefits of insurance with market-linked returns. They are popular among investors who aim to achieve their long-term goals while securing their families’ future. In this blog, we will elucidate the features, benefits, fees, and charges associated with ULIPs and demonstrate how they can assist you in building wealth and safeguarding your loved ones.

What Are ULIPs?

Let’s understand the ULIP meaning. ULIPs, or Unit Linked Insurance Plans, represent a unique product category that blends a life insurance component with an investment feature. When you opt for a ULIP, you commit to paying regular premiums. The premium frequency can be monthly, quarterly, half-yearly, or annual.

A portion of these premiums is allocated to secure a life cover, often referred to as the sum assured, intended to provide financial support to the nominee in the event of your demise. Meanwhile, the remainder of your premium is strategically invested across various funds closely tied to market performance.

What Are the Features and Benefits of Ulips?

ULIP scheme offers several features and benefits that make it an attractive investment option for investors. Some of them are:

  • Wealth creation: ULIPs allow you to invest in market-linked funds to help you grow your wealth over time. You can choose from various funds- equity funds, debt funds, or balanced funds that suit your risk profile and goal horizon. You can also switch between funds per your changing needs and market conditions.
  • Life cover: ULIPs provide you with a life cover that ensures your family’s financial security in case of your untimely demise. You can also enhance your life cover by adding riders such as accidental death benefit, critical illness cover, etc.
  • Tax benefits: They offer tax benefits on the premium paid and the maturity/death benefit received. Under Section 80C of the Income Tax Act, you have the opportunity to avail a tax deduction of a maximum of Rs. 1.5 lakh per year on the premiums paid. The maturity/death benefit is also exempt from tax under Section 10(10D) of the Income Tax Act, subject to certain conditions.
  • Flexibility: You can select the fund or combination that matches your risk-return expectation. You can switch between funds without any tax implication or exit load, subject to some limits.

What Are the Fees and Charges of Ulips?

ULIPs involve various fees and charges that are deducted from your premium or fund value. These are:

  • Premium allocation charge: This is a charge that is deducted from your premium before allocating it to the fund or funds of your choice. This charge covers the initial expenses incurred by the insurance company, such as commission, underwriting, etc.
  • Fund management charge: This is a charge that is levied for managing your fund by the fund manager. This charge is calculated as a percentage of the fund value and is deducted before declaring the fund’s net asset value (NAV). This charge varies depending on the type of fund and is usually higher for equity funds than debt funds.
  • Switching charge: This is a charge that is levied when you switch from one fund to another within your ULIP. Most ULIPs allow you a certain number of free switches every year, after which you have to pay a switching charge for every switch. This charge may be fixed or a percentage of the switched amount.
  • Partial withdrawal charge: This is a charge that is levied when you make a partial withdrawal from your fund value after the lock-in period. Most ULIPs allow you a certain number of free partial withdrawals every year, after which you must pay a partial withdrawal charge for every withdrawal. This charge may be fixed or a percentage of the withdrawn amount.
  • Surrender charge: This is a charge that is levied when you surrender your policy before the maturity date. Suppose you surrender your policy within the lock-in period of 5 years. In that case, you will not receive any fund value, and the entire amount will be transferred to a discontinued policy fund, where it will earn a minimum guaranteed interest rate. You will receive this amount after the completion of the lock-in period.

Understanding these charges is essential for the decision-making process and the success of the investment strategy.


ULIPs are designed for those looking to align their investment goals with life protection, offering flexibility in choosing funds and the ability to adapt as financial needs and market conditions change. The amalgamation of insurance and investment ensures you achieve your long-term goals while securing your life and your family’s future. However, ULIPs also involve various fees that can affect your net returns. Therefore, you should understand the features, benefits, and charges of ULIPs and choose the best one for yourself based on your risk appetite and financial goal.

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