ULIPs have long been touted as a costly investment instrument. A new generation of ULIPs today however tell a different story. We take a closer look.
United linked insurance plans (ULIPs) have long been blamed as costly investment instruments owing to various charges incurred by the investor. It’s true that the entire premium amount paid by the investor is not invested entirely on buying units in a ULIP. There are certain ULIP charges that your insurance company will deduct before allotting a specified number of units to you.
Despite those charges, ULIPs have always been a popular investment tool for millions of Indians because there are several advantages including faster wealth creation, life protection and ULIP tax benefits. And now insurers have come with a new generation of ULIPs that are cost-efficient and provide the biggest bang for your buck. If you thought that ULIPs are high cost products, Future Generali Life Insurance explains why they are not costly anymore in this article.
Premium allocation charges in ULIP: Premium allocation charges (PACs) are mostly commissions paid to distributors and a certain percentage of the premium is deducted on account of these charges. PACs are generally higher in the initial years and tapers down as the policy term progresses. PAC also depends upon the premium payment mode, frequency and amount. Allocation charges in ULIP may vary from 0% to 9%.
Due to lesser or no involvement of intermediaries while buying ULIPs online, premium allocation charges have come down or have been totally waived off by some insurers. Most ULIPs bought online today are free from allocation charges.
For instance, Future Generali Life Insurance provides zero allocation charges on its Future Generali Pramukh Nivesh ULIP with systematic transfer of funds and switching before maturity. 
Mortality charges in ULIP: Mortality charges have been a constant source of contention between investors and insurers. In simple words, mortality charge is the cost of providing life insurance cover to the policyholder. Mortality charges in ULIP have come down significantly and some insurers have also come up with plans that provide return of mortality charges.
Long-term capital gains tax (LTCG): With the imposition of LTCG, ULIP tax benefits are comparatively now higher than mutual funds and equities. ULIPs are not affected by LTCG and all the money you receive on maturity is tax-free. Additionally, ULIP fund switching does not attract any tax unlike mutual funds.
Fund management charges in ULIP: There are various funds that constitute a ULIP and the insurance company charges a percentage of the fund value for managing these funds. This amount is adjusted from the Net Asset Value (NAV) on a daily basis and cannot exceed 1.35% of the fund value as per regulations. Debt funds attract lower fund management charges in ULIP while equity linked plans draw higher charges.
Fund management charges are important for insurance companies to manage costs so they can’t do away with these charges. However, they make it up by not charging premium allocation and policy administration charges. This brings down the overall deductions from the premium that an insured pays to invest in the fund.
Policy administration charges: There are certain administration costs that are incurred while operating a ULIP policy. It is generally the costs of paperwork, communication and other overheads. This could remain flat throughout the policy term or vary based on a predetermined rate. While few insurance companies are doing away with policy administration charges, some insurers have reduced these charges significantly.
For instance, Future Generali Life Insurance deducts policy administration charges at a flat rate of 0.1% per month from the premium. The minimum amount is Rs.50 and the maximum can go up to Rs.500 per month. 
Low-cost online ULIPs: With many insurance companies banking on online channels to drive business, ULIP costs have come down considerably. Buy selling ULIPs online, insurers don’t have to pay intermediaries and distributors, as well as are able to cut down operational costs and overheads. This cost saving is being seen in the form of various charges being removed or being considerably reduced by insurance companies benefiting customers.
ULIPs can be a lucrative wealth creation opportunity combined with the benefit of life protection and tax benefits. If you have an investment horizon over 10 years, ULIPs are certainly the right fit for you. However, do some research and go with a ULIP with the lowest cost structure. Learn more about how to choose the right ULIP plan here.