See how premium allocation, mortality, and fund management charges reduce a ULIP's effective returns versus the gross fund growth.
Each year, a ULIP premium is reduced by a premium allocation charge before investing; the invested corpus then grows at the fund's return rate, minus an annual fund management charge (FMC) and a mortality charge. This runs a year-by-year simulation over the policy term.
Illustrative estimate only — actual premiums and payouts depend on the insurer's underwriting, medical checks, and policy terms. Always get a quote directly from a licensed insurer.
A ULIP (Unit Linked Insurance Plan) bundles life cover with market-linked investment, but that bundling comes with layered charges most buyers never see broken out. Premium allocation charge is deducted upfront — a fixed percentage of each premium — before the rest is invested; on a ₹50,000 premium with a 4% allocation charge, only ₹48,000 actually goes into your chosen fund. Mortality charge pays for the life cover portion and is deducted periodically based on your age and sum at risk, rising every year as you get older — a cost that's easy to overlook since it's taken directly from the fund rather than billed separately. Fund management charge (FMC) is an annual percentage of your fund's value, IRDAI-capped at 1.35% per year, and it compounds against you the same way expense ratios do in a mutual fund.
The combined effect of these charges is front-loaded — they bite hardest in the early policy years and shrink in relative impact the longer you stay invested, which is precisely why ULIPs are structured with a minimum 5-year lock-in and marketed as long-term products. Surrendering a ULIP in years 2 or 3 typically means the allocation and other charges never had time to be diluted by growth, producing a worse net return than the same money in a plain mutual fund over the same short period. Over a genuinely long horizon (10-15+ years), the gap narrows because ongoing charges (mainly FMC and mortality) become the dominant cost rather than the one-time allocation charge, but the total charge structure is still worth comparing honestly against buying term insurance and a separate mutual fund SIP, rather than assuming the bundled product is automatically more efficient.
It's a percentage deducted from each premium before the remainder is invested, covering the insurer's initial costs like commissions and policy setup. On a ₹50,000 premium with a 4% allocation charge, only ₹48,000 is actually invested into your chosen fund — the rest never reaches the investment side at all.
IRDAI caps fund management charges (FMC) at 1.35% per year, but even within that cap, FMC compounds against your returns the same way a mutual fund's expense ratio does — a higher-FMC fund needs to outperform a lower-FMC fund by the same margin just to deliver equal net returns.
ULIP charges are front-loaded — allocation charges hit hardest in the first few years, and there hasn't been enough time for investment growth to dilute their relative impact. Surrendering during or shortly after the 5-year lock-in typically produces a worse net outcome than staying invested longer, which is part of why ULIPs are structured and marketed as long-term products.
Yes, proportionally — the one-time premium allocation charge becomes a smaller share of your total returns the longer the policy runs, while ongoing charges like FMC and mortality charge become the more significant ongoing cost. Over 10-15+ years the charge drag narrows compared to alternatives, though it's still worth comparing honestly against a term plan plus a separate mutual fund SIP.