Where does your ULIP premium go? Charges, units, and fund value explained

A ULIP premium does not automatically become fund value in full. Applicable premium-level deductions are made first, and the balance is used to buy units in the fund or funds you selected. Other charges may then be recovered by cancelling units or reflected in the fund’s net asset value (NAV). The exact sequence and amount depend on your policy terms.

How does a ULIP use the premium you pay?

A Unit-Linked Insurance Plan (ULIP) uses your premium for two connected purposes: maintaining life insurance cover and building a market-linked fund value. After applicable taxes and policy charges are dealt with, the investible portion buys units at the applicable NAV in your chosen fund allocation. Because charges and market movements affect value, premium paid, and fund value are not the same figure.

The simplest way to follow the money is: premium received, applicable deductions, net amount allocated, units purchased, and ongoing deductions or NAV adjustments. Your policy schedule, benefit illustration, and periodic statement should disclose the product-specific details.

What is deducted before units are allocated?

Premium allocation charge, if the product has one, is deducted from the instalment premium before units are purchased. Applicable taxes may also be collected according to prevailing law. The remainder is the allocation amount. Charge percentages can vary by policy year, premium size and payment mode, so a general online percentage should not replace your policy’s charge schedule.

Some newer products may have no premium allocation charge. “No allocation charge” does not mean the policy has no charges at all. Check mortality, policy administration, fund management, discontinuance, switching, partial-withdrawal, and rider charges, as applicable.

How are units purchased from the allocation amount?

The allocation amount is divided by the applicable NAV to determine the units credited. If you split the premium between funds, the allocated amount is divided in the selected proportions before units are calculated. NAV represents the per-unit value of a fund after permitted fund-level expenses have been reflected.

Illustrative example only
Suppose a premium of ₹50,000 is paid. Assume ₹1,000 in applicable premium-level deductions, leaving ₹49,000 for allocation. If the applicable NAV is ₹20, the policy receives 2,450 units: ₹49,000 ÷ ₹20. These figures are invented solely to explain the arithmetic. They are not a quotation, projection, or representation of any ABSLI product. Actual charges, NAV and unit allocation will differ. [2]

Which ULIP charges affect your premium or fund value?

ULIP charges do not all operate at the same stage. Some reduce the amount available for initial unit allocation, some are recovered later by cancelling units, and fund management charges are reflected in NAV. This distinction is important when you compare the premium receipt with the policy statement.

Charges, their frequency, caps, and deduction method are product-specific. The policy document and approved sales literature prevail.

How is the mortality charge calculated?

The mortality charge pays for the life cover under the policy. It is generally based on the applicable mortality rate and the “sum at risk”, with adjustments specified in the product terms. The rate may depend on attained age and other underwriting factors. It is commonly recovered monthly by cancelling units.

Do not assume the charge must decline every year. The fund value, sum at risk, age-based rate, death-benefit structure, and policy terms can all affect the amount. Use the mortality-charge table and formula in your own policy document for an accurate reading.

Why can your fund value be lower than the premiums paid?

Fund value can be lower because applicable charges reduce the amount allocated or the units held, and because NAV can fall when the market value of the chosen fund decreases. Conversely, favourable market movement may increase fund value. Neither direction is assured. A short-period comparison between total premiums and fund value can therefore be misleading without reviewing the transaction history.

Where can you verify every deduction?

Start with the customised benefit illustration provided before purchase. Then read the policy schedule and charge provisions. After issue, reconcile each premium receipt, and policy statement by checking the allocation amount, NAV date, units added, units cancelled, charge narration, and closing fund value. Ask the insurer for an explanation if a line item does not match the policy terms.

• Premium receipt: Confirms the amount and payment date.
• Benefit illustration: Shows prescribed illustrative outcomes and the effect of applicable charges. It is not a promise of returns.
• Policy document: Gives the binding charge definitions, frequency, caps, and deduction rules.
• Policy statement: Shows units, NAV, transactions, and fund value for the statement period.

What happens if premiums stop during the lock-in period?

A ULIP has a five-year lock-in. If a policy is discontinued during this period, the treatment of fund value, discontinuance charge, risk cover, revival options, and payment timing follows the applicable regulation and policy terms. The balance may move to a discontinued-policy fund and generally becomes payable after the lock-in ends. Review the notice and revival choices before deciding.

How can ABSLI help you check premium utilisation?

Aditya Birla Sun Life Insurance Company Limited can provide the policy document, benefit illustration, premium receipts, unit statement, NAV information, and customer-service clarification for an ABSLI Policy. Use these records to verify product-specific deductions. This article is educational and does not replace the terms of an issued policy or personalised financial advice.

What should you check before choosing a ULIP?

Look beyond the premium and any illustrated fund value. Check whether you need the life cover, can remain committed through the lock-in, understand market risk, and can explain every applicable charge in plain language. Also review the fund choices, switching rules, discontinuance terms, and benefit illustration. Choose only after deciding that the structure suits your protection need, time horizon, and risk tolerance.

Also read

• What is a Unit Linked Insurance Plan? Meaning, charges, risks and tax rules
• Seven ULIP charges you should know about
• What happens to ULIP premiums if the market falls?
• How to switch between equity and debt in a ULIP
  
  

References

[1] Insurance Regulatory and Development Authority of India, Master Circular on Life Insurance Products, Ref. IRDAI/ACTL/MSTCIR/MISC/89/6/2024, dated 12 June 2024. Verify the latest consolidated version before publication.

[2] Aditya Birla Sun Life Insurance, “7 Charges in ULIP Plan You Should Know About”, accessed 8 September 2026: https://lifeinsurance.adityabirlacapital.com/life-insurance-basics/ulip-plan-module/types-of-charges-in-ulips/

[3] Live source article, “How is your ULIP Premium Utilised”, first published 4 March 2022, accessed 8 September 2026: https://lifeinsurance.adityabirlacapital.com/articles/wealth-insurance/how-is-ulip-premium-utilised/