ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment.
The dynamics of the capital market have a direct bearing on the performance of the ULIPs if the policyholder opts for investment in funds having equity element in it.


The allocated (invested) portions of the premiums, after deducting all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders, are pooled together to form a Unit fund.

It is a component of the Fund in a Unit Linked Policy.

Most insurers offer a wide range of funds to suit one's investment objectives, risk profile and time span requirements. Different funds have different risk profiles. The potential for returns also varies from fund to fund. The following are some of the common types of funds available along with an indication of their risk characteristics.

Nature of Investments
General DescriptionRisk Category
Equity Funds Primarily invested in company stocks with the general aim of capital appreciation. Medium to High
Income, Fixed Interest and Bond Funds Invested in corporate bonds, government securities and other fixed income instruments. Medium
Cash Funds Sometimes known as Money Market Funds invested in cash, bank deposits and money market instruments. Low
Balanced Funds Combining equity investment with fixed interest instruments. Medium

From 01st September 2010 onwards all new ULIP pension/ annuity products sold shall offer a minimum guarantee, as specified by IRDAI from time to time. This guarantee return is applicable on the maturity date, for policies where all due premiums are paid. Investment returns from other ULIP products may not be guaranteed. 'In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.

In case of unit linked pension / annuity plans, no partial withdrawal is allowed during the accumulation phase. However in other ULIPs partial withdrawals are allowed from the 5th year onwards.

Yes, one can discontinue a policy if one wishes to. From the 1st of September 2010 onwards IRDAI has introduced a cap on policy discontinuance charge, basis the year of discontinuance and annual premium. This allows life insurers to charge only a small penalty on early surrender of policy

ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.

  • Premium Allocation Charge

    This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.

  • Mortality Charges

    These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc.

  • Fund Management Fees

    These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).

  • Policy/ Administration Charges

    These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.

  • Discontinuance Charges

    A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.

  • Fund Switching Charge

    Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

  • Service Tax Deductions

    Before allotment of the units the applicable service tax is deducted from the risk portion of the premium. Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units. Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units.

One has to verify the approved sales brochure for

  • All the charges deductible under the policy.
  • Payment on premature surrender.
  • Features and benefits.
  • Limitations and exclusions.
  • Lapsation and its consequences.
  • Other disclosures.
  • Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the Life Insurance Council.

The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining, after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product and year to year. The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units

The policyholder can seek refund of premiums, if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units, subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.

NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers

The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.

The value of the fund units with bonuses, if any is payable on maturity of the policy.

Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as 'TOP UP' facility. A part of the top up will be invested into the market while a small portion will be used to enhance the risk cover in the policy.

Yes. 'SWITCH' option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.

  • Discontinuance within five years of commencement

    - If all the premiums have not been paid for at least five consecutive years from inception, the insurance cover may cease as per the terms of the policy post grace period allowed for payment of premium. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, the proceeds of the policy will be paid at the end of the lock-in period. As per IRDAI guidelines, from 1st September an interest of 3.5% is payable on account value till the lock-in period.

  • Discontinuance after five years commencement

    - No discontinuance charge is applicable. However, the Net Reduction in Yield would be more than what will be applicable if the policyholder completes the full tenure of the policy.

The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.


The above material is provided for general information only and do not constitute legal or other professional advice. This information is current at the date of publication but may be subject to change without notice and accordingly, may not be up to date at the time of viewing. Information specific to a product may be obtained from the concerned Insurer.